Does Homeowners Insurance Cover Rental Property
Why Are Insurance Policies Different For Rentals?
It's all about who is occupying the home that is being insured. Most homeowner’s insurance policies are designed to protect a home that is occupied by the owner only. Now if you only rent out your home a couple weeks per year while you're on vacation that typically won't affect most policies. It is when the rare rental turns into a frequent occurrence that you'll need to upgrade your homeowner’s insurance policy.
There are two ways you can do this. The first would be to add a unit rental to others addendum to your current policy for a small upgrade fee to your annual premiums. This typically covers the situation where you're sharing the home with a tenant who is renting a room from you. If the tenant is renting a separate building from you, but it is still on your property, this may or may not apply depending on your policy and your lender.
If you do not routinely live in the home that has a tenant, then you'll need to upgrade to a landlord's insurance policy.
What Is a Landlord's Insurance Policy?
A landlord's insurance policy acts in the same way that a homeowners insurance policy does, just with the focus that a tenant might cause the damage because they are living there. There are three basic types of landlord's insurance, so it is important to consider what your overall needs are going to be.
Type #1: Basic insurance policies will cover simple things, like vandalism and fire. It won't cover items like storm damage or other natural disaster items that may occur.
Type #2: This type of insurance will cover most problems that a landlord will encounter and includes storm damage. It's the usual policy that is chosen because it covers almost any damage a tenant could do to a property and it protects against vandalism as well. Many policies will even provide collision insurance, so if a tree or a car strikes your home, you're covered.
Type #3: This insurance is called “Open Peril” insurance. Unless the policy specifically excludes specific damage in the language of the agreement, then you'll be covered no matter what happens.
No matter what insurance policy you get, it is important to make sure your compensation includes actual replacement costs, not just the cash value of the home. That's why many landlord's should opt for at least a Type 2 policy. You'll also want to protect yourself through insurance against injuries with increases in medical coverage.
The costs of a landlord's insurance policy are typically about 30%-50% higher than a homeowner’s insurance policy, but the investment will keep you covered. Talk with your agent today about your specific needs and then make the adjustments as necessary so that you and your property are protected.
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