Homeowners insurance is a kind of property insurance taken to cover damages and losses to the owner’s residence including furnishings and other belongings in the home. The insurance also offers liability coverage for any accidents that occur within the property or home. There are four types of incidents covered by this insurance; exterior damage, interior damage, damage or loss of personal possessions, and any injury occurring while on the property.
The homeowner pays an out-pocket-cost or a deductible when there is a claim on either of the incidents. This insurance policy does not cover acts of God or acts of war. If you live in an area that is prone to natural disasters, you need to obtain special insurance coverage for earthquakes or floods. But, some basic policies in this category provide coverage for tornadoes and hurricanes.
To qualify for this insurance policy, you have to live in the house as the homeowner, but if someone else is occupying the home, you need another type of insurance.
If you are a landlord who is renting out your vacation cottage or house for the first time, do not assume that you are still covered by homeowner’s insurance. When you rent out your home, you need to obtain landlord property insurance to cover costs incurred in case of accidents, damages, or natural disasters. A landlord insurance policy provides the following protections:
- Lost Rental Income – This covers losses in rental income that you incur when your property is unoccupied because of disasters such as termite infestation, severe mold, sinkhole, or rat infestation. It offers temporary rental compensation to cover the income you would be receiving if the property was occupied.
- Damage to Property – The policy covers damages to property or personal belongings caused by fire, earthquakes, natural disasters, gas/electric malfunction, irresponsible tenants, or vandalism. Try and negotiate for ‘replacement cost’ in the policy in place of ‘actual place value’ or a fixed cash lump sum.
- Liability protection – This covers legal or medical costs that might emerge if a visitor or tenant is injured while on your property because of maintenance issues such as architectural collapse, icy pathways, and even an uncontrollable hive of bees.
Extra Coverage
Landlord property owner insurance policies sometimes come with several stipulations. Although they are not as important as the main provisions, they are still helpful as they can save you money.
- Emergency Cover – If a tenant asks you to visit the property to fix something like an HVAC system or accidentally locked themselves out, the policy can assist in covering part or all the costs incurred while traveling to the property to resolve the problem.
- Flood Insurance – If your property is situated in an area prone to floods, you should obtain this coverage as standard property owners’ policies do not cover flood damage associated with municipal plumbing or natural disasters.
- Assured Income Insurance – The coverage pays the landlord when a tenant fails to pay rent for a month or totally defaults on rent.
- Extra Construction Expenses – This coverage takes care of expenses that the landlord incurs when upgrading the building after suffering damages.
Landlord Insurance vs. Homeowners’ Insurance
Similar to a homeowners’ policy, landlord property insurance covers the specific building, other structures such as fences or sheds when they are damaged by lightning, hail, fire, or wind. It may also cover you when you are living in your home but renting out one room to a tenant. However, this type of coverage varies by policy or insurer; hence you should consult your insurance agent before renting out a room in your home. Yet, if you’re renting out your entire home, you will need to obtain property owner’s insurance.
Other differences between the two insurance policies include:
Liability Coverage
The insurance policy taken out by the property owner covers liability coverage that relates only to rented premises. If your tenant gets hurt while in the rental property and it is established that you are legally responsible for the accident, the liability coverage that’s on the policy will pay for any legal fees or medical expenses. On the other hand, homeowners’ insurance covers you and your family members who live in the home, regardless of where the accident occurs, either home or away from home.
Personal Property Coverage
Whereas homeowners insurance covers personal possessions such as clothing, furniture, and electronics, property owners insurance only covers the items that service the rental property. Therefore, if you store personal items on the property, they won’t be protected by this policy. But, the policy may cover equipment such as lawnmower or snow blower as they help in maintaining the property.
Deductibles and Coverage Limits
You should know that coverage through homeowners’ insurance has a limit, that is, the maximum amount of money the policy can pay when a claim is made. It is possible to adjust the coverage limit to suit your needs while taking into account factors such as the value of your possessions and home. Also, consider the cost of repairing or replacing the valuables in case they are damaged by a covered threat. Mostly, you pay the deductibles before the insurance company compensates its share. Carefully peruse your contract or policy to establish your deductibles and coverage limits. Typically, they can be adjusted to suit your requirements.
Obtaining the appropriate insurance coverage creates peace of mind in the long-run. The following are considerations about insuring your rented property correctly.
- Ensure the property is qualified to be a rental. If you are not sure if your living arrangement is qualified to be termed as ‘renting’, consult your local insurance provider. Determination of a property to be a rental differs among different insurance providers including whether the ‘tenant’ is a relative, whether the rented space has a detached entrance, and the way the rented space is connected to the main house. Make sure that your situation aligns with the definition of your insurance provider’s to make the right choice.
- Obtain additional coverage. The standard homeowners’ insurance policy does not cover incidences that occur while renting out the property.
- Obtain dwelling fire insurance. When offering your property for rent for a lengthy period, you need property owners’ insurance. The policy covers loss of income and property damage. Additionally, you can take out other coverage to protect your property further.
- Ask your tenants to acquire renter’s insurance. This is not a requirement by state law, but it is the only way a tenant can protect their possessions as your policy as the landlord does not protect the tenant’s personal belongings. Renters insurance protects the tenant from incurring out-of-pocket costs for incidences such as damage by water back-up and some natural disasters.
- Cover personal possessions. If your property is on full-time renting arrangements, you do not need a homeowners’ insurance policy. But, if there are furnishings in the house that belong to you, the landlord, or if you store other possessions in the house, then homeowners insurance is also a must.
Final Word
As the owner of the property, your coverage only covers the building structure and your monetary interests in the building. Anything that the tenant brings into the building is not covered by the landlord property insurance policy. To avoid future legal disputes that may occur when your tenant’s belongings suffer damages, ask them to obtain renters insurance. The policy will cover their personal belongings while your policy will cover the building. Renters insurance should be acquired before the tenant signs the lease agreement.
Please contact The Webb Insurance Group with any additional questions or to get set up with homeowners insurance, rental home insurance, or any of your other insurance needs.
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