Homeowners insurance and rental insurance have a similar responsibility of covering the physical structure and other structures on the property. A homeowner’s policy will provide coverage for personal property (contents) and personal liability for the household members. Typically, rental insurance will not provide personal property coverage as that would be the responsibility of the tenant. Additionally, liability coverage on a rental policy would only provide protection for that specific location. For example, if a tenant gets hurt and the landlord is found legally responsible, the liability coverage would protect the landlord against medical expenses and legal costs. An insurance agent can help explain what types of scenarios may and may not be covered by homeowners insurance while you're renting your home to tenants and why you may need to purchase rental insurance. 

Producer Myles Trempe addresses common questions about homeowners insurance and renters insurance below.

Which type of coverage is needed if you simply plan to rent out a spare room in your home?

If a homeowner rents out a portion of their home or even a spare room, they should contact their local insurance agent to better understand how their homeowner’s policy will respond. Some insurance companies may allow for a short-term rental situation assuming they have been made aware by the agent or insured. Most likely, the company is going to require the insured to move the risk to a commercial policy or rental dwelling policy as it would constitute as a business. Standard homeowners’ policies do not provide any coverage for business activities conducted in the home.

Do you ever need both homeowners insurance and landlord insurance?

Yes, this is a very common scenario if you own a home and additionally own rental dwellings. Your primary residence that is not rented should have a homeowner’s policy in place that will provide personal liability, personal property coverage and building coverage. If you have a portfolio of properties that are rented, those should be insured on a rental property policy or what is called a DP3 policy. A landlord should have a DP3 policy for all rentals as it will provide coverages specific to his investment, specifically “loss of rents” which will allow the landlord to recover loss rent while the house is being restored due to a covered peril of loss.

What is the typical cost for landlord insurance versus homeowners insurance? 

A standard homeowner’s policy is more comprehensive than a DP3 policy but in turn actually costs less than a DP3 rental policy. A homeowner’s policy as mentioned will not provide coverage for the person purchasing a home to rent to others. The transaction of you renting out the home is an increased risk exposure in the eyes of an underwriter with an insurance company. As we examine our book of business and compare homeowner and rental polices with similar rebuild costs, the premiums are anywhere between 20-30% higher for rentals. 

What factors can influence how much you pay in premiums for either type of insurance?

Many factors can impact the cost of homeowners and/or rental insurance. Underwriters examine prior losses, conditional factors of the risk, location, cost to rebuild, credit score and deductible limits, just to name a few. 

What are some coverage additions worth evaluating when it comes to landlord insurance?

A landlord will want to work with a local insurance agent to better understand which coverages will best protect them and their investments. Depending on the cost of each investment and the requirements, they may have their bank (if a loan is applicable) decide to insure the property for replacement cost, actual cash value, agreed value or functional replacement cost. A rental property should have liability coverage which will protect from the legal and medical costs associated with someone being injured on the rental property. An agent should also provide an umbrella quote if the limits of coverage may not be sufficient to cover potential liabilities. Rental properties should be covered for loss of rents which will provide protection for lost rent payments due to the property being uninhabitable due to a covered peril of loss. A local insurance agent will have a better understanding of the risk exposures due to the geographic location of the risk. An agent may recommend flood or earthquake coverage as those are excluded from a standard home or renal dwelling policy. 

To what extent an umbrella policy is needed or recommended when you have landlord insurance?

Umbrella insurance covers you and members of your household against lawsuits involving personal injury to others, damage to other people’s property and a variety of claims such as defamation, landlord liability and false imprisonment, depending on your policy. A local agent will help navigate your underlying liability limits to better recommend if an umbrella is necessary. Being a landlord or property owner comes with serious risk exposures. I always recommend an umbrella policy as the underlying limits of a policy may not be sufficient.

What are the steps involved in transitioning from homeowners insurance to landlord insurance?

This transition must occur if the home becomes rented permanently and is a source of income. If you purchase a property to be rented to others, you will need to notify your insurance agent to secure a rental policy. 

Is it worth it to get landlord insurance?

Absolutely. Whether you own a home or a rental property, it is essential to have liability coverage. As for insuring the building for physical loss, that is a decision the investor would need to make. If a property has a loan, the bank will require property insurance.

Which types of carriers offer the best renters insurance coverage?

A local, independent agent will help you navigate home and rental insurance. Their expertise of the marketplace will allow the property owner to make a sound decision for the best coverage options provided by the best carriers. The independent agent works very closely with their insurance companies to best understand their products and how those offerings best support their clients.  

Questions about homeowners insurance or renters insurance? Contact Wallace & Turner at (937) 324-8492 in Springfield, (937) 652-8492 in Urbana, or info@wtins.com.