Investment Property Insurance

When it comes to finding insurance for an investment property, it’s a good idea to look beyond what a homeowner’s policy offers you.

Particularly if you are renting your property and not living on any portion of your investment, the amount of risk that your property and its condition pose both to and from its inhabitants needs extra protection when you have a property that serves as a regular or vacation rental.

Most policies will not pay out if someone has a homeowner’s policy but is renting out the property as well.

This is because the number of risks that are inherent in renting are significantly more than if you simply live in a home.

Here is a look at some of the things that landlord insurance covers above and beyond a homeowner’s policy.

Be sure to utilize the FREE quote comparison tool above!

Why landlord insurance?

Homeowner’s policies are designed to cover the amount of risk that is inherent in owning and living in a home. These numbers are very different than the risk factors that come with renting a place. This is for several reasons.

First, renters often do not put the care into keeping a place that a homeowner would have. Second, unless a renter is long-term, it takes time for any occupant to know a place well enough to know how to best care for a place.

Each time a renter leaves and is replaced with someone else, that learning curve begins back at zero. Finally, though the background of an owner can be considered in creating a risk profile for a homeowner, when that person is not the occupant, it means that almost nothing is known about the actual occupant from the insurance company’s standpoint.

Is landlord insurance really necessary?

which homeowners rates are bestIf you are only renting out your home for a short period, like for one four-day weekend per year during an annual festival, or as a vacation rental or house swap when you are away, then you don’t need landlord insurance.

However, the more you do these temporary rentals, the more you may want to check the state of your homeowners insurance liability policy.

Liability levels are not required to be very high for a homeowner, but add-on policies to cover your assets are available without switching to a landlord plan.

If your investment property is not a rental, but a real estate flip, then landlord insurance may not be the right choice. There is a special form of homeowner’s insurance that is needed when flipping a house.

Because the house will likely be unoccupied and full of construction workers, and may be owned by a business entity instead of personal homeowners, it is important to work with an insurer as soon as you consider purchasing the place.

This will help you to find the right policy to fit this kind of investment.

Coverage Types

Coverage for investment property insurance is designed to cover not only repair and/or replacement on damage to your investment home, but also to protect you from lawsuits if someone on your property is bitten or injured.

The level of coverage is divided into three different dwelling policies, which are categorized into several levels. These levels, called DP-1 through DP-3, usually cover the following:

  • DP-1 covers just the basics, like fire and vandalism.
  • DP-2 covers the items from DP-1 as well as common weather mishaps like hail, lightning, snow and wind.
  • DP-3 policies are open-ended, and cover most any damage that a home incurs. There are some things that are specifically excluded from policies, but those are usually listed in the policy to leave little to no gray area.

Additional protective policies are available for the repair and/or replacement of large items like a boiler that runs to an entire apartment building.

Liability Insurance

Another important part of a landlord insurance policy is liability. The ability to keep your investment from becoming the reason you lose everything is very important.

Tenants, their guests, or even victims of something your tenant have done are all possible lawsuits waiting to happen.

Questions to Ask When Purchasing an Investment Policy

house insurance quotesNot all insurance companies offer the same things, and it is important to ask a lot of questions to better understand exactly what a particular policy has to offer.

Here are some good questions to ask before signing a particular policy:

  • What does payout entail? Some policies will cover replacement cost, while others will replace the home value, which may not be enough to get you what you used to have.
  • What Kind of Damage is Specifically Excluded? Read your fine print and ask good questions. Flood, certain acts of nature, and other items may require additional policies.
  • Do They Offer Loss of Income? Though lost rental income cannot be recovered due to an eviction, it can be obtained if an apartment is vacant due to damage.
  • Do You Offer Umbrella Policies? If your lawsuit exceeds the level of assets you own in your rental, your personal assets outside of the rental may be at risk. Umbrella policies may help protect your personal assets.

The Price of Homeowners vs Landlord Insurance

The difference in price between homeowners and landlord insurance is small. For a home with a homeowner’s insurance rate of between $700-1000, it would add approximately $100/year to the cost of an insurance plan.

However, the special add-on policies may add a bit more, particularly if you are interested in a liability plan that has a payout that is significantly higher than the value of the home.

A good rule of thumb is to consider your landlord insurance to be 15-20% more than what you were already paying.

Personal Property Insurance

If you are renting out a furnished apartment, coverage of your furnishings can help get protection and replacement if you have less-than-responsible renters.

However, even if you are renting out empty rooms, the carpeting, drapes and/or blinds, light fixtures and other things that come standard in your apartment may be valid to claim under a personal property insurance clause.

Renters Insurance

One thing that will not be covered by your insurance, no matter which policy or policy add-ons are purchased, is the personal property, such as furniture, of your renter. For this to be covered during an accident, a renter must purchase their own renters insurance.

This is an inexpensive policy, as it only covers the renters belongings, and some landlords will require their renters to purchase a policy as a condition of the lease. If you are a renter, it is always a smart idea to purchase your own renters insurance, because getting replacement furniture during a flood from an insurance company is much easier than trying to get it from your landlord.

If the landlord or his/her designated property manager is somehow responsible for the damage to the renter’s property, this is the one exception where the owner’s insurance may cover replacement.

How to Find Good Landlord Insurance

free homeowners insurance quoteMany of the same insurance companies who offer homeowners insurance will also offer landlord insurance.

If you are beginning to rent out a house that you used to occupy, one good way to do this is to start with the insurance company you have been using for homeowners insurance.

This plan can serve as a jumping-off point for a landlord plan, as all of the critical information that is needed to create a policy can be found in that plan.

From there, the age and maintenance state of the property, the code compliance of the structure, and the risk factors of the area are all taken into consideration.

Neighborhoods with low crime and little weather risk will make the best candidates for low-priced landlord insurance.

However, a well-maintained structure can be a good investment for an insurance company no matter where it is located. Here are a few tips to finding the right landlord insurance:

  • Shop Around- Use your homeowner’s insurance as a jumping-off point.
  • Compare Equal Policies- If one seems much less expensive than the others, be certain that they aren’t offering fewer benefits
  • Read the fine print as to benefits and exclusions. Ask questions about specific hypothetical scenarios and exactly how that would translate into benefits.

No matter where you find insurance for your rental company, the more you look around and the more questions that you ask, the happier you will be with your policy. One last thing to consider when shopping around for insurance is the ease with which claims are settled.

It is one thing to have a clause that guarantees a number of rights, but if the company is difficult to work with or to settle claims fairly, the value of the contract is significantly less.

If you have two policies that you are debating that are similar in price and in benefits, the one with better claim payouts and better customer service will likely be the best choice for you and your family’s investments.