Renting Your Home, Look Into Landlord Insurance

Maybe you’re moving up to a bigger home and holding on to your former residence as a rental property. Or maybe you’ve tried to sell your home without success. Whatever the reason, if you’re thinking about renting out your home, you need to look into landlord insurance.

Homeowners insurance covers your house if it burns down, your possessions if there’s a break-in, and medical and legal bills if someone gets hurt on your property. Problem is, homeowners insurance might not offer protection if you decide to rent out your home. Landlord insurance does. Set aside half a day to research policies.

Renting out your home raises risks

Homeowners insurance typically covers owner-occupied, single-family residence. When your home doesn’t meet that definition because it’s being rented out regularly, it’s no longer covered.

The risk is also higher for both you and your insurer when you rent out your home on a full-time basis. You have an increased responsibility for injuries on the property, whether to your tenants or your tenants’ guests.Insurers also experience more claims on tenant-occupied properties because tenants typically don’t care for properties as well as owners would. Renters are less likely to either identify or report maintenance needs and may be unfamiliar with a home’s systems like the location of the water shut-off.

Look into landlord insurance

When you decide to become a landlord, inform your insurer and ask about a specific landlord insurance policy, sometimes known as a dwelling fire policy or special perils policy. Coverage from a basic landlord policy isn’t quite as broad as a homeowners policy, but it includes big risks like fire, wind, theft, and ice damage.

There are several levels of dwelling fire policies: DP-1, DP-2, and DP-3. The higher the number, the better the coverage. A DP-3 policy might provide replacement cost on the house and theft of contents coverage for your belongings.

Expect to pay about 25% more for landlord insurance than you did for homeowners insurance, according to the Insurance Information Institute. In recent years the average cost of homeowners insurance was $822 a year. Tack on 25%, and that would put the average annual premium on landlord insurance at about $1,025.

Other insurance policies to consider

Landlord insurance typically covers the house itself, other structures on the property such as sheds, the owner’s possessions (but not the tenant’s possessions), lost rental income if the house is damaged and uninhabitable, and some liability protection for the owner in case of injury or a lawsuit. Policies vary, however, so read the fine print. If lost rental income isn’t included, you might be able to add the coverage.

Finally,  you may want to require tenants to buy renters insurance that protects their own property. Remember, landlord insurance only covers the owner’s property.