Do I Need Homeowners Insurance Or Landlord Insurance For A Rental Property?

Supposing you own a home that has served as your primary residence for some time but you are now considering renting it out to tenants, what kind of insurance policy would you need?

If you already have the homeowner's insurance, is it acceptable for a rental property? If it is not and you have to get landlord's insurance, what are the differences between the two types of insurance policies?

These questions are important if you are transitioning your home to a rental property from being previously owner-occupied. Not understanding how homeowner's insurance and landlord's insurance work could seriously hurt your rental business in the future.

If you apply the wrong policy, you will incorrectly assume that the property is covered. And it may take an unpleasant event in the home to uncover that error. If this happens and you are lucky, you could get a chance to fix the mistake. But if you are not so lucky, it could be the end of your rental business or worse.

So what is the right insurance policy for your rental property; homeowner's insurance. 

 What is homeowner's insurance?

 Homeowner's insurance or home insurance is a form of property insurance that homeowners are expected to purchase if the home is the individual's primary residence. Homeowner's insurance covers various forms of damage to the home or losses to the owner's belongings inside the home. It also offers protection from personal liability in the event of accidents that occur in the home. There are four categories of incidents that homeowner's insurance protects homeowners from:

  -Exterior damage

  -Interior damage

  -Damage or loss of personal possessions

  -Injury to any person while on the property

 What is the landlord's insurance?

 Landlord's insurance covers a dwelling when the owner does not live in the property, but the home is leased to tenants. The risks associated with a home when it is not owner-occupied are greater than when the owner lives on the premises. If the occupant is ineligible for homeowner's insurance (since they are not the owner), a different policy is needed for that home. Like homeowner's insurance, landlord's insurance also offers:

  -Exterior damage

  -Interior damage

  -Damage or loss of personal possessions

  -Injury to any person while on the property

But there are important disparities in the way and extent that the landlord's insurance covers these items that make it significantly different from homeowner's insurance.

Differences between homeowner's insurance and landlord's insurance

Here are those differences in brief:

1. Personal property coverage

Typically, homeowner's insurance protects most or all of a property's owner's assets from damage; furniture, electronics, jewelry, clothing, and other things. This coverage also extends to items belonging to their family members who live in the home. But the landlord's insurance will only cover the property owner's personal belongings if they are used to service the rental property. These may include appliances or furniture inside the home and the landlord's lawnmower. It does not include items that are left behind by the property owner.

2. Liability coverage

The liability coverage offered by homeowner's insurance covers both the homeowner and their family members or relatives who live in the home. But liability coverage under landlord's insurance is only concerned about injuries or any harm to tenants in the home or visitors to the property. It excludes landlords and their family members from the liability coverage of a landlord's insurance policy.

3. Additional coverage

In addition to providing personal property coverage and liability coverage, landlord insurance will often offer extra coverage to the property owner. These may include:

  Loss of rental income: This allows the landlord to earn a stipulated amount that the insurer pays when the rental is undergoing repairs. It ensures that the landlords' means of livelihood are not interrupted by unforeseen events.

  Guaranteed Income Insurance: If a renter fails to pay the rent, landlords' insurance can step in and pay the property owner to ensure they don't lose their income. But this payment usually does not exceed one month.

4. Policy requirements

While homeowner's insurance will require that the homeowner lives on the premises, landlord's insurance often stipulates that renters must have renter's insurance, or the landlord's insurance may become invalid.

Which one do you need for a rental property?

Landlord insurance is the right policy for a rental property. However, there are situations where it may not be clear which policy is best for you. For instance, if you live in a single-family home and rent out one of the rooms, which policy will afford you the best coverage? In such circumstances, homeowner's insurance may still be acceptable. But since insurance company policies vary greatly, it is best to consult your insurance agent.

Article written by Shawn Evans of East Bay Property Management