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Property Management Blog

Landlord Insurance Basics - Part 1

System - Thursday, February 1, 2018
Property Management Blog

Succeeding as a landlord involves a lot of knowledge and a solid foundation of experience. The thing is, there isn’t a landlord school where you can go to learn what you need to know in order to be successful. As a result, a majority of landlords have significant holes in their knowledge bases. Wherever you are on your journey as a landlord, you can always learn more. 

Whatever has led you to become a landlord, you’re going to face the question of whether you should invest in landlord insurance or not. A proper understanding of landlord insurance will help you make the best decision for you, and that is why we are taking this time to take an in-depth look at this potentially-valuable resource. We will explore whether you need it or not, what it actually covers, how to access it, and few other important things to consider. 

Landlord Insurance 101

We want to start where most landlords start: do they even need it? 

Do I need landlord insurance? 

This type of insurance isn’t legally required, but because it is foundational to protecting your investment, you probably need it. Landlord insurance does more than just cover your property; it covers your legal costs if you have to go to court. It will also have your back if you have emergency appliance repairs or you’re losing income. 

Are there times when you don’t need landlord insurance? 

  • You’re renting out your basement to a local college student. 
  • You rent your home out for one weekend each year when a major festival happens in town and visitors need places to stay. 
  • You own a cabin specifically for vacations, and you let your friends stay in it for fewer than four weeks in the summer. 
If you aren’t renting the property out for more than four weeks, your homeowner’s insurance should cover you. However, it is important to double-check with your insurance agent to make sure. If you have established a landlord-tenant relationship without letting your insurance company know, they may refuse to pay any of your claims. 

What are the differences between landlord insurance and homeowner’s insurance? 

  • Rental income coverage. If your dwelling has to be unoccupied during repairs (that are already covered by insurance), you’ll lose income. Landlord insurance will compensate you for that loss. 
  • Pricing structure. Landlord insurance costs more than homeowner’s insurance. You can expect to pay 12 to 25 percent more for landlord insurance than you would for homeowner’s insurance. However, landlord insurance provides wider coverage. 
  • Differing risks. Insurance’s job is to anticipate risks and provide for them. Landlords run the risk of being sued by their tenants, needing to fix vandalism damages, and encountering problems that haven’t been reported. 

What exactly does landlord insurance cover? 

Landlord insurance covers liability, property, and rental income replacement. It comes in three different tiers to accommodate different needs and budgets. You will see the acronym “DP,” which stands for Dwelling Protection. 

  • This basic level covers vandalism and fire. If you completely lose a dwelling, a DP-1 policy will give you the depreciated cash value of the home, but it won’t cover the cost of replacement. 
  • You get extra coverage at this level, including windstorm, hail, tenant, and collision damage. There is a specific list of events that this level covers, so you’ll want to be familiar with it. If the event isn’t on the list, it won’t be covered. 
  • This is the highest coverage level, and is often called an “open peril” policy. It will cover any damaging event unless it specifically excludes it. If the dwelling is lost, a DP-3 policy will pay the whole replacement cost. Unless you already have partial coverage from a condo association, a DP-3 policy is generally the best choice. 

A few last thoughts: 

  • Insurance can be customized to cover items on the premises, including sheds, appliances, and tools. 
  • You won’t get flood damage coverage from a general landlord insurance policy. You will need to purchase some from the National Flood Insurance Program. 
  • The premiums you pay for landowner insurance are all set by the government. 

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