Landlord Insurance vs Homeowners Insurance: Costs & Benefits
If your house is your primary residence, you may require protection from homeowners. But if you rent it out for a more extended period, you will need rental protection. Being a landlord is a long-term reward, stability, and freedom to manage your financial fate and potential retirement.
Investing in rental properties will produce stable profits and set you up to invest in additional properties if you manage it correctly from the outset. You already know the value of getting a property reviewed, making the right improvements to draw tenants, and determining the perfect monthly rental fee.
So what’s the main difference between landlord insurance vs homeowners insurance? If you rent your own property, then you’d need landlord insurance. Homeowner’s insurance only protects your personal home against fire, vandalism, and weather disasters. There are certain limits to homeowners insurance if you rent out your property and without the right insurance you could be at significant financial risk.
What type of insurance do you need? How much does it cost and can you lower your costs?
Read on in this article, we will make a detailed comparison between landlord insurance vs homeowner insurance, the costs, the benefits, who needs it, and much more.
Homeowners Insurance vs Landlord Insurance
Homeowners insurance covers much more than mere home insurance. In addition to homeowners insurance, the policy also provides personal property coverage, liability coverage, and a range of other protections.
Although a standard homeowners policy is only appropriate if the house you are insuring is your primary residence, when you plan to rent out a house or a second home for a more extended period, you will need protection that protects you in areas where homeowners don’t have insurance. This is where homeowner insurance kicks in.
On the other hand, landlord insurance is explicitly intended for landlords and homeowners who plan to rent out their homes for an extended time. It includes specialized coverage, such as loss-of-income coverage, if the covered damage causes your tenants to move out — standard homeowners insurance won’t cover.
The primary difference between homeowners and landlord insurance is that homeowners insurance includes homeowners insurance coverage, while landlord policies do not cover renters. Otherwise, the policies are essentially the same so that you wouldn’t need both renters insurance and homeowners insurance to protect your property at the same residence.
Homeowners Insurance vs Landlord Insurance Key Differences:
- Homeowners insurance coverage includes fires, damages from wind, rain, lightning strikes, vandalism, damages from burst pipes, break-ins, and other accidental events.
- Landlord insurance covers similar perils to those that are covered by homeowners insurance and repairing accidents caused by tenants.
- Both homeowner and landlord insurance cover detached structures like sheds.
- One of the biggest differences when it comes to homeowners vs landlord insurance is that homeowners insurance often offers personal property coverage, and landlord insurance doesn’t
- Homeowners and landlord insurance can include coverage for personal liability and injured guests on your property.
- Landlord insurance doesn’t cover the tenant’s property, but renters insurance does.
Homeowners insurance has five core types of coverage:
- Personal property
- Personal liability protection
- Additional living
- Medical expenses
Home insurance for rental property has all of these features except the first, making it similar to cheap home insurance for tenants.
Types of Landlord Insurance Policies
There are three common types of landlord insurance policies, which are also referred to as housing policies:
DP-1 Policy: Dwelling-Fire Form 1 (DP-1)
This is the most basic option for landlords. DP-1s are called hazard insurance policies, meaning the policy’s risks only cover you.
DP-1s are also an actual cash value (ACV) policy, which means that if the home is damaged, you will only be reimbursed for the property’s depreciated value. Although they are the cheapest in the bunch, DP-1s are far and away from the least popular insurance option for landlords and should be avoided.
DP-2 Policy: Dwelling Fire Form 2 (DP-2)
This offers slightly more comprehensive coverage than DP-1s, providing broader named risk coverage (covers 16 perils instead of just 10) and cost-replacement (RCV) coverage for your property.
Similar to renters insurance, it ensures that depreciation is not factored in the cost of restoring the building if a fire burns down the house. It cannot be understated how critical the difference between ACV and RCV is — with RCV. You are theoretically saving tens of thousands of dollars in out-of-pocket costs in the case of complete property damage. The replacement cost program is worth the extra premium on its own.
DP-2s also provide a loss-of-rent coverage that provides extra rental revenue when the property is restored due to losses incurred by the danger protected. However, DP-2s would typically not protect the land if it has been empty for more than 30 days.
DP-3 Policy: Dwelling Fire Form 3 (DP-3)
This is the market’s most general and robust form of landlord insurance. In addition to categorizing them as landlord insurance plans, DP-3s are also used to insure non-owner inhabited residences and vacant lands.
DP-3 policies are “all-risk” or “open-risk” policies, meaning that your property is subject to all threats except those defined explicitly in your regulation. For DP-3s, the home is still covered by repair expense coverage, and the lack of rent coverage is included in the scheme.
DP-3s are the most prevalent form of landlord insurance purchased on the market today, but DP-2s are also common depending on whether you need more or less extensive rental property coverage.
Landlord Insurance vs Homeowners Insurance Cost
There is a difference between when it comes to homeowner insurance vs landlord insurance cost. The reason is that landlord insurance offers different types of specialized protection compared to the risks associated with renting your property.
Homeowners insurance vs rental property insurance covers so much that it makes the purchase worthwhile. It keeps you from losing your rental income if your property becomes uninhabitable.
Landlord Insurance vs Homeowners Insurance: Types of Coverages
Let’s look at the different insurance categories to see what type of coverage is available for landlord insurance vs. homeowners insurance policy.
The main framework protects both coverages in the case of a defeat. Depending on the type of insurance policies you buy, you can decide which risks (wind and hail, water damage, arson, etc., the home is subject to. Make sure to ask the dealer about the replacement expense vs. the real cash value. This will mean a difference between a minor annoyance and a huge financial mess.
This segment also includes large appliances in the event of a natural catastrophe (i.e., tornado, fire, etc.). However, in the case of regular wear, it does not protect these appliances. If you are worried about this, consider getting an extra device warranty. Request a quote from your insurance company.
This type of coverage refers to sheds, fences, and other separate structures. Separate structure coverage is typically automatically included with the homeowners’ policy. Often, the scope of different systems has to be added to the landlord policy as an endorsement. Be sure to talk to your representative about whether or not you need this coverage.
Personal Property Coverage
In general, this is not included in the landlord policy unless specifically requested. Most investors do not provide their rents, so there is usually no need for this coverage type.
Loss of Use vs Fair Rental Value
With homeowners insurance, the insurance company will pay you to rent a home while the home is being rebuilt. But what if you’re the landlord? What’s with your tenants? If your investment property is uninhabitable, how will you generate income from your tenants? The solution is simple: ensure your homeowners policy comes with Fair Rental Value. The insurance company will cover the loss of rent resulting from the claim.
This is by far the most critical piece of coverage for the landlord’s policy. Landlords also need more excellent protection of responsibility against lawsuits brought against them. This form of policy will protect you if someone files a claim against you for damage caused, such as physical harm or collateral damage. Landlords have far less power over their property than their principal residence. We do recommend that you choose as much liability insurance as possible. You may want to suggest an umbrella policy depending on your particular circumstances.
The umbrella scheme is a general insurance policy that only protects the risk part of the lawsuit. Many landlord insurance plans have a loss limit of between $25,000 and $1 million.
Suppose you’re a landlord, and someone dies on your property due to your incompetence. In this case, they’re going to file a lawsuit against you and win in court. When you get a $1.5 million verdict against you and your liabilities caps are $1 million, you will be liable for $500,000 in penalties that fall out of your pocket. You will have an umbrella fund of up to 5 million to offset all court costs if you are sued.
Medical Payments to Others
This coverage will protect you if anyone is hurt in your house. Let’s imagine a nail on your home sticks out of the wall, and someone drives his arm over it, cutting off his arm and demanding 22 stitches. Your insurance can cover this kind of cost.
According to theInsurance Information Institute (III), a landlord policy would, on average, pay about 25% more than a standard homeowners policy. As of 2015 (the latest statistics collected by III), the total mortgage insurance premium was $1,173.
Is Landlord Insurance Cheaper Than Homeowners?
Or is landlord insurance more than homeowners? A landlord insurance policy costs about 25% more than a homeowners policy. The reason for this difference in costs is primarily based on who is occupying the home. Insurance companies usually see lower average claim amounts for owner-occupied homes compared to tenant-occupied properties.
Another factor that impacts the cost of the insurance policy is the difference in liability coverage. Landlord insurance policies often offer more liability coverage than homeowners insurance policies, which drives the price of landlord policies higher.
Finally, knowing all about homeowners insurance for rental property investment takes you one step closer to snagging the ideal property, bringing it all in shape, and welcoming your first tenants! Why quit searching for the right rental property insurance? You can also discover the right way to fund your goal of being a landlord.
Do I Need Landlord Insurance or Home Insurance?
One of the biggest dilemmas about landlord’s insurance vs homeowners insurance is which one you need. So let’s say you want to rent your property only during the weekends. In this case, you need to be careful not to become a landlord accidentally, as your homeowners insurance may not cover the damages that result from renting. You should also remember that not having the coverage you need can be quite costly, as you can be responsible for medical bills and property damages.
Let’s dive into this topic with more details:
As mentioned above, if you rent your property for one weekend, your homeowners insurance may not cover you. In some cases, homeowners policies have one-time rentals, but it might also be the case that you will need an endorsement added to your policy.
Long-term rentals usually refer to renting out your property for one month or longer. For example, suppose your space is occupied for over a year by a single family. In that case, you will need rental property insurance whenever you are not occupying it because you are renting your entire property long-term. But, if you have a tenant or a single family who are using a part of your home while you are still occupying it, you will need homeowners insurance.
Is Landlord Insurance More Expensive Than Homeowners Insurance?
When it comes to landlord policy vs homeowners policy cost, a landlord insurance policy is about 25% more expensive than homeowners insurance.
Is Landlord Insurance Different to Home Insurance?
Home insurance covers the costs of repairing your home after it gets damaged in certain insured events like fire, flood, or vandalism. On the other hand, landlord insurance covers similar perils, but includes coverage for specific situations related to renting out the property, like damages caused by tenants.
Finally, the answer to your question: “Do I need landlord insurance and homeowners insurance,” would be that it is very important to learn the difference between landlord insurance and homeowners insurance first. If you own a property or you decide to rent out your property, both short- and long-term, you want to be sure you have the proper coverage in case anything bad happens to your property.
Did you learn something useful about the differences between landlord insurance vs. homeowners insurance? If you did, make sure you also read more about business renters insurance as well!
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