Rental home insurance: who needs it and what does it cover?
Rental property insurance, also known as homeowners insurance, covers the one-time risks incurred when renting your home or condo for long periods of time. Its coverage includes property damage, civil liability charges and loss of rental income for owners who rent their property. Whether you are renting out your home, vacation home, or investment property, rental property insurance is important protection against the financial risk associated with tenants living on your property.
What does rental home insurance cover?
Rental property insurance coverage will vary, but policies will generally cover the accommodation or structure of your property, contents of owner-owned property, liability coverage, and loss of rental income. Much of its coverage is similar to that of home insurance, although it has some unique features that home insurance lacks and that explain the added risk of having tenants on your property.
Just like home insurance, rental home insurance covers physical damage to your home, that is, damage to the structure of the house or the apartment itself. For example, it will cover damage to your walls and roof, but not to your tenant’s personal items. Coverage will only extend to damage caused by a covered peril, and you should make sure you understand which perils, such as fire or lightning damage, are covered by your particular policy.
Owner’s personal property coverage
contrary to Tenant insurance, rental property insurance does not cover the personal property of tenants living on the property. However, rental property insurance often includes coverage for items left behind by the landlord. For example, if you left a lawn mower in your rental home and it was damaged by fire – and fire is a covered risk in your policy – the damage to the machine would be covered by your rental property insurance. . However, if your tenant purchased a personal air conditioning unit damaged by the same fire, the AC unit and the rest of the tenant’s property would not be covered by your rental home insurance.
When shopping for rental home insurance, you should check whether personal property coverage is included in the insurer’s standard policy and, if so, to what extent it will cover your property. Sometimes this coverage is only offered as an optional add-on, called a rider. In other cases, the coverage will function as insurance for the appliances in your rental property. This means that only damage to property that is used for apartment maintenance, such as a washing machine, can be covered, while damage to a TV will not.
Liability insurance will protect you from legal and medical costs associated with injury to someone on your rental property. If your tenant or a visitor is injured on your property and you are held responsible for the injury, rental property insurance may cover these costs up to the limits of your policy. If you are someone for whom the limits of this coverage are not sufficient to cover potential liabilities and want to increase your coverage, you can also purchase umbrella insurance for your rental property.
Loss of rent guarantee
This blanket provides protection against lost rent payments if the property you are renting is uninhabitable due to a covered risk. You can think of it as a form of rental guarantee insurance. For example, if fires are covered by your rental home insurance and the damage caused by the fire makes the apartment uninhabitable, rental income protection covers you for rents that your tenants are no longer required to pay. Coverage will generally extend up to a defined period, for example 12 months. Loss of rental income is not always the norm with rental property insurance, so you should check your policy before purchasing it if this type of coverage is important to you.
Types of rental property insurance policies
When shopping around for rental property insurance policies, you may notice that there are different types of policies called âformsâ. Like home insurance, different rental home insurance plans have different levels of coverage. The descriptions provided below are generalized, but can give you an idea of ââwhat to expect for each type of form.
DP-1: Rental property insurance is classified as a residential policy, or PD, and PD-1 is the cheapest form with the most basic coverage. DP-1 forms generally only cover named perils, which means that if a peril or disaster is not explicitly named on the form, you will not be reimbursed for the damages. These policies often reimburse you on the basis of actual cash value, which means your insurer will pay you for the covered damage less wear and tear, called depreciation.
DP-2: This form provides slightly wider coverage than the DP-1. Like the DP-1, the DP-2 cover tends to be on a named peril basis. However, DP-2 coverage will generally extend to a wider range of risks. For example, an insurer may offer coverage for burglary damage in its DP-2 policy but not in its DP-1 policy. The DP-2 form also improves upon the DP-1 by generally offering coverage on a replacement cost basis, meaning that the damage will be covered at the price it would take to cover the damage at current market prices, without taking into account depreciation account.
DP-3: This form, the more expensive, offers the widest range of coverage of the three. This type of policy will provide extensive risk coverage, protecting against all risks except those explicitly excluded in the policy. Like the DP-2 policy, its coverage will be provided on a replacement cost basis.
Optional supplements to your rental home insurance
The coverage provided by rental property insurance varies by insurer, and standard coverage with one insurer may be optional or unavailable with another. Below, we’ve listed some examples of common endorsements you can add to your rental home insurance. We recommend that you research quotes to find the best combination of price and coverage that meets your needs.
Optional rental insurance riders
- Vandalism coverage: This usually covers willful physical damage to the home. Allstate is an example of an insurer that does not cover vandalism with its rental home insurance but offers it as a rider.
- Prescription or law coverage: This covers an impairment loss or the costs associated with the application of local laws regarding the repair of property caused by an insured loss. If this type of add-on is important to you, you can turn to State Farm, which offers this rider.
Do you need rental home insurance if you have home insurance?
It depends on how long you intend to rent the property, but in most cases home insurance coverage will not be a suitable substitute for rental property insurance. There are unique risks associated with having tenants in a rental property that will not be covered by home insurance, especially if you plan to rent a property for an extended period.
The type of insurance you need will depend on how often you rent out your home and how long your tenants stay. These distinctions can be divided into three categories: long-term rental, infrequent short-term rental and frequent short-term rental.
Long term rental: If you own an investment property, vacation home, or second home that you intend to rent to a single person, couple, or family for an extended period, you will need rental home insurance. A long period of time usually means six months or more. The same is true if you rent out your primary residence for a large part of the year. Compared to being a resident landlord, having a rental home increases your exposure to certain risks, such as liability issues with tenants and their guests. Your insurer will not cover these risks under a home insurance policy unless you actually reside in your home.
Short term rental infrequent: If you only intend to rent out your property for a short period, such as a week or a few weekends, your home insurance may actually cover you. This coverage can be included as standard in your policy if you give your insurer proper notice, extending the usual home insurance benefits to periods when you temporarily rent your property. If not, you may be able to purchase an endorsement from your insurer that extends your coverage to temporary rentals. Before committing to a short-term rental, you should contact your insurer to make sure they are aware of it and that you understand your coverage.
Frequent short-term rentals: If you plan to regularly rent a property to various people for short periods of time, your property can be considered a business, and neither home insurance nor rental home insurance will cover you. Instead, you will need to purchase some form of commercial property insurance to cover the associated risks. For example, Progressive offers âroommate insuranceâ, also known as vacation rental insurance, for people who rent out their home or room through a service provider like Airbnb or VRBO. These policies include unique features such as coverage against bedbugs and identity theft.
You should be aware that while the service providers themselves may offer some form of limited protection, it will usually not be as comprehensive as the colocation insurance offered by an independent insurer. For example, Airbnb has a host warranty policy covering property damage to your home up to $ 1 million for each listing, but the policy includes limitations that traditional insurance won’t. One limitation is that the request for coverage must be submitted within 14 days or before the customer’s next check-in, which gives you limited time to take action and secure reimbursement.
How much does rental home insurance cost?
Rental home insurance is about 25% more expensive than equivalent home insurance. Since the whole country average cost home insurance is $ 1,445, you can expect the national average for rental property insurance to be around $ 1,800. The higher rates reflect the additional risks posed to a landlord compared to a resident landlord, such as the potential loss of rental income and civil liability of tenants and their guests.
If you are interested in rental home insurance, policies are offered by major home insurance companies like Allstate and State Farm, so you can easily buy and compare rental home insurance quotes online.