Insuring rental properties is much different than insuring your primary residence. As a property owner you face losses from unforeseen scenarios that could result in the loss of the home or other monetary damage. The most common losses we see to rentals homes are fire and smoke damage. For example, as a result of a kitchen fire, but there are other common losses such as windstorm damage and water damage from a burst pipe.
When should you buy Landlord Insurance for your Investment Property?
If the home is not your primary residence and you rent the home to another individual or family, you must have Rental Insurance. The most common form written is known as the Dwelling Fire Policy or a DP-3. The policy acts just like a primary home policy, but the Dwelling Fire often includes coverage for loss of rental income from a covered claim.
Why buy Rental Insurance?
As stated before, rental properties have different coverage levels that are designed to help the homeowner against losses associated with renters. Some of the most common potential losses include:
- Fire and smoke damage caused by the tenants
- Fire and smoke damage from lightning
- Loss of rental income from a covered loss
- Personal injury on the premises that the landlord would be held legally liable
- Water backup
- Damage from windstorm
Can a Landlord Cover Personal Property in the Home?
Most landlords remove all their personal belongs, but a few still have fully furnished homes or homes with some personal furnishings. Landlord’s have the option to cover personal belonging up to 50% of the insured value of the home. For example; you have a home insured for $100,000 means you can insure the personal property up to $50,000, which is 50% of the insured value of the home. You also have the option to choose less than 50%.
It’s important to realize coverage doesn’t extend to the tenant’s personal property. Landlords should always require the tenants to carry a Renters Policy naming the Landlord as additional insured. Why name the Landlord as additional insured? In the event of a Personal Liability claim the Landlord would be covered under the Renters policy and not have to involve his insurance policy in the claim.
What Factors Influence the Premium?
There are literally hundreds of factors that control the premium and some we can see when we are inputting the home information and others are done on a modeling scale at the insurance carrier. Carriers will forecast different models to see what the potential loss factors are for their portfolio of homes. If a carrier feels they are too heavy weight in one area they might increase rates to decrease the amount of homes in that area. Other factors include:
- What year was the home built?
- How far is the home from a fire hydrant and fire station, also known as the Protection Class.
- Any prior losses?
- Distance to coast?
- Building type i.e. Masonry, Masonry Veneer, Frame, etc.
- Property address?
- Credit Score (This is becoming more popular as insurers are finding out higher credit scores have less claims)
The last factor to consider is the length of the lease.
Insurance carriers prefer six (6) months to one (1) year lease options. They will commonly deny a claim or refuse to offer a quote to short term rentals. Short term rentals commonly have a higher chance of loss and insurers are unwilling to take on such risk without collecting higher premiums. Short Term Landlord policies are available usually at a higher premium and written as an excess line of insurance.