Homeowner’s insurance does not cover a dwelling unit not occupied by the concerned owner. If you have leased your home to a tenant, you need landlord insurance. It offers liability protection and also covers you in cases of loss of rental income or property damage.
The moment you rent out your property, your existing coverage for owner-occupied homes ceases to apply. In the event of an unforeseen eventuality on your property for whatever reason, your tenant is not liable to mend the damage.
As the owner of the said property, you have to shell out for repairs, replacements, or restoration work. In such cases, a landlord insurance or rental property insurance comes to the rescue. It adequately protects your investment from the financial risks associated with leasing out your property for extended durations.
Purchasing rental insurance generally proves costlier than a homeowner’s policy as the liability is more where a tenant resides instead of the owner. The size of your property’s structure, location, and condition helps determine the premium you are obliged to pay. An insurance agent with considerable experience in rental property coverage can advise you correctly.
A fire, break-in, natural calamity, or severe weather can damage the property you rent. It is advisable to take a rental deposit from your tenant at the time of signing the lease. Though purchasing landlord insurance is not mandatory, having one compensates you in times of financial distress and unforeseen circumstances.
Five critical aspects of rental property insurance you must be aware of are:
Home Insurance Is Not a Substitute
When you rent your dwelling for six months or longer, rental insurance is warranted. Your home insurance policy only covers you provided you reside in that house. If you lease out your property without informing your insurance provider, you risk losing out on an existing homeowner’s policy.
Categories of Dwelling Policy (DP) Exist
The levels of coverage vary across categories of rental insurance. DP-1 explicitly highlights the disasters it covers and reimburses you on actual cash value minus depreciation.
DP-2 provides for a broader spectrum of losses on a replacement cost basis. DP-3 is the most expensive as it offers extensive coverage for damages borne by catering for replacements at current market prices.
Additional Riders Available
Additional coverage you may choose to take along with your landlord insurance address many factors. Guaranteed income covers you if your tenant fails to pay rent one month, or you receive less than your dues.
Flood insurance comes in handy when your property is located in a flood-prone zone. Provisions exist to cover additional expenses incurred while conforming to specified construction codes or having to travel to resolve a pressing issue your tenant faces.
Frequent Short-Term Leasing Not Covered
Renting your property frequently, even if for shorter durations, is considered a business venture. Neither homeowner nor landlord insurance covers the associated risks in such cases. You need to opt for commercial property insurance with unique features like identity theft coverage and bed bugs protection.
Long-Term Tenants Must Have Separate Coverage
Your rental property insurance does not safeguard your tenant’s personal belongings. In the event of a fire, theft, or natural disaster, the tenant may demand compensation for the damage to their household goods and personal items.
When drafting the lease agreement, include a clause that insists the tenant takes appropriate individual coverage beforehand. This arrangement protects you from liability or personal damage claims arising as a result of their occupancy.
Invest in a rental property policy to live stress-free, especially when the risk is high with a tenant’s presence on your property. A suitable coverage taken from a leading insurance agency sufficiently protects you on all related fronts.