Every home is required to have homeowners insurance. Even so, renters are highly encouraged to carry their own renters insurance policy. Why? The landlord’s policy might not be set up to cover the tenants property in case of damage, and with renters insurance being extremely affordable, double coverage is a safe bet. In that case, should a landlord also carry landlord insurance?
Yes, the landlord already has a necessary homeowners insurance policy in place. However, that policy covers what is known as owner-occupants, meaning the homeowner occupies the home. When someone else other than the homeowner occupies the home, the risk assessment is higher. Therefore, insurance companies are more inclined to deny any claims on rental properties. Plus, if for any reason that the home is not livable when a claim is submitted, regular home insurance policies do not provide coverage for “loss of rent” while you aren’t able to have tenants in the property.
There are currently three types of landlord insurance policies. DP-1 is basic coverage covering common occurrences such as vandalism and fire. The payout is given in an “actual cash value” instead of a replacement value. DP-2 is moderate coverage of a list of predetermined, named perils that the homeowner requests be written into the policy. Any losses are treated with a replacement cost rather than Actual Cash Value. However, this policy does not cover many of the perils if the home has been vacant. DP-3 is a full coverage landlord insurance policy. Unlike the named perils in DP-2, the third option covers all perils, also known as open perils. The standard policy also covers loss of rent.
Landlord insurance may also have a liability insurance clause, which helps protect you from any lawsuits presented by your tenants. The liability insurance generally assists you with legal fees and may even provide you with an attorney. You may also be able to include a guaranteed replacement cost, which will provide you with the full payment of repairing damaged or destroyed property rather than a check for the depreciated value of the property. But most important of all, there are two clauses for “loss of rents” and “loss of use” which help pay you while you are not able to collect rent on a damaged property and help your tenants with a place to stay while the property is being repaired.
If you’ve decided that landlord insurance is a good idea for your rental properties, don’t forget that it is also a good idea to require your renters to have renters insurance, because the landlord insurance will most likely not pay for their belongings.