One of the most common ways of generating income is by renting out property. The property you rent out could be a part of your house or a separate property that you want to put on rent.
It is advised to get rental property insurance if you are planning to be a long time landlord, However, it’s not also a bad option even if you want to put your property on rent for short term. It can help you protect yourself against many risks.
Read the article to learn about Rental property insurance in detail:
What Does Rental Property Insurance Cover?
Rental property insurance also known as landlord’s insurance will generally cover the structure or dwelling of your property, liability coverage and loss of rental income. It’s usually coverage is similar to home insurance, however it has additional features that home insurance lacks that provides protection against the risk of having tenants on your property.
Dwelling (a place of residence) coverage
Just like home insurance policy, rental property insurance also covers the damages caused to your dwelling ,that is the structure of your home, building or apartment. However, any damage caused to the property of your tenant will not be covered under this policy and they need to get mortgage insurance for themselves.
Coverage will extend for only damages caused by certain hazards, that include fire or lightning damage. You can add more features to this by getting extra coverage for your insurance policy.
Personal Belongings coverage
Rental property insurance does not cover any personal belongings of the tenants however if the landlord leaves any of his personal belongings on the property, then any damage to it will be covered by the insurance policy provider.
When looking for rental property insurance, you should ensure whether property coverage is part of the insurance policy guideline, and if yes then to what extent will it cover your personal property.
However there is also a limit to which the insurance company will cover, you can increase the coverage amount if you are leaving more of your belongings in the rented out property.
This coverage provides protection against medical and legal costs associated with someone being injured on your property. If your tenants or someone on your property gets injured and the landlord is responsible for it , then the medical bills will be covered by the insurance company. If you require more coverage, than you can increase the amount the company covers by adding extra coverage to your policy.
If your property that you wanted to rent has become inhabitable due to a storm or lightning and you can not rent it out for a certain time period, till it gets repaired, then the amount of lost rent in that time will be covered by the rental property insurance. Coverage will generally extend up to a defined period of time, such as 12 months. Loss of rental income does not always come standard with rental property insurance, so you should check your policy before purchasing it if this type of coverage is important to you.
What is not covered by Rental property Insurance?
The following is not usually covered by Rental insurance policy, but it can vary company to company. The common things that are exempted by most companies include:
- Damage caused to roof or walls due to continuous or repeated seepage or leakage of water or steam.
- Damage caused due to floods or underground water.
- Damage caused due to earthquakes or landsliding
- Damage caused by birds, rodents, insects or domestic animals.
- Damages caused due to a deterioration or any nuclear hazard.
Types of Rental Property Insurance :
Rental property insurance differentiate by the amount of coverage they offer. There are 3 main types of Insurances
Dwelling Policy 1
It is the most basic form of rental policy, as it has small coverage. It covers only a few named perils, any hazard other than will not be reimbursed by the insurance policy provider.
Dwelling Policy 2
This form provides slightly broader coverage than the Dwelling policy 1. Like the DP-1, DP-2 coverage tends to be on a named peril basis. However, DP-2 coverage will generally extend to a broader range of perils. Dwelling policy 2 provides replacement cost ,meaning that damage will be covered at the price it would take to cover the damage at current market prices, without accounting for depreciation.
Dwelling Policy 3
This form, the most expensive, provides the broadest range of coverage of the three. This type of policy will provide extensive peril coverage, protecting against all perils except those explicitly excluded in the policy. Like the DP-2 policy, its coverage will be provided on a replacement cost basis.
How much does Rental property Insurance cost?
Rental property insurance usually costs 25% more than what home insurance policy costs. Given that the nationwide average cost of homeowners insurance is $1,083, you can expect the nationwide average for rental property insurance to be approximately $1,350. The higher rates reflect additional risks posed to a landlord over a live-in homeowner, such as the potential loss of rental income and the injury liability posed by tenants and their guests.
There are many coverages that home insurance policy does not cover, which is covered by rental property insurance policy in detail, making it a more expensive policy.
Optional Endorsements for Rental Insurance policy
This coverage covers any physical damage that has occurred to the home, building or apartment. There are many insurance companies that don’t cover this in their usual rental insurance policy.
Ordinance or Law Coverage:
This covers a loss of value or costs associated with enforcing local laws surrounding the repair of property caused by an insured loss. If this type of coverage is required, than you should add this endorsement into your insurance policy.
Rental property Insurance policy is a more modified version of home insurance as it considers all the various risks that can occur due to a tenant living in your place. It is advised that you should get rental property insurance to protect yourself from damages to your dwelling or your personal belongings present in the home.