Landlord Insurance

Get a Landlord policy for any residential investment property. Anything from condo units to single-family homes to quadplexes - insure it your way

Landlord Insurance

If you own a residential unit, your investment property acquired to generate income by renting to your tenants, you need Landlord Insurance. Insurance agents call it DP3 or Dwelling protection form 3. It is also known as a Dwelling Fire insurance policy.

Landlord policies offer different forms

Landlord insurance policies are written on one of the following forms:

  1. Basic. Coverage is provided only due to specific causes of loss. Losses outside of that list are not covered.
  2. Broad. Just like basic, it covers against specified perils (cause of loss). This list is slightly larger by a few additional causes of loss.
  3. Special. That’s the one you want. It’s more expensive, of course, but it’s an open peril form, meaning that any causes of loss are covered except those expressly excluded.

When shopping online, generally, everyone compares insurance companies’ rates based on three things: Dwelling coverage, Liability, and Deductible. You chose the cheapest one and think you did a great job. Maybe you did, but not one policy is the same. Some policies are written on a Basic form while others – on a Special, which is a big deal between these two. Also, many policies are just very limited regarding add-on coverages that come with Landlord Insurance, and there could be many exclusions and limitations. So, working with an insurance agent that understands that type of coverage may help you avoid future claims that may not get paid.

The main purpose of this policy is to protect the physical structure of the dwelling and liability protection for the landlord.

Typically, Landlord insurance policies offer the following coverages:

Coverage A (Dwelling)

Coverage A (Dwelling) is one of the most important parts of Landlord Insurance. Often landlords do not choose a high enough limit by underestimating how much it costs to rebuild the building. It is your responsibility, not the bank’s or agent’s, to insure your building up to the replacement value.

What is Replacement Cost

Landlords and even some agents think the limit of Coverage A should equal the mortgage amount or the property’s market value. The property’s mortgage amount, market value, and replacement cost are three different things.

To get your investment property insured, you need to determine the replacement cost of the building, which is the amount of money required to rebuild your property from the ground up, after a loss like a fire, for example. The replacement value should include the cost of removing debris, cost of labor, and materials.

The insurance company will not pay off your loan in case of fire. Neither will they give you a check for the amount of insurance you purchased nor a check for what your home is worth. They will pay a contractor to rebuild the property up to the limit of the Dwelling coverage.

However, if you fail to insure the property up to its replacement value, the insurance company may pay a proportionate amount. For instance, if you insured your property for $200,000 but it costs $400,000 to rebuild it, you insured only 50% of your property. In this case insurance company may end up paying you only 50% ($200,000 *50%=$100,000) of your coverage (penalizing you for being under-insured).

Coverage B (Other structures)

Coverage B (Other structures) is for the structures on your property that are not attached to the main building, like a fence, detached garage, shed, etc. As with any limits of the insurance – make sure to have a sufficient amount to cover such structures.

Coverage C (Personal Property)

Coverage C (Personal Property) may not be automatically included in some Landlord policies. Landlords rarely have their personal belongings on the premises that are rented out to others. However, if you do have some belongings, such as appliances or furniture – add Personal Property coverage to your policy.

Coverage D (Loss of use)

Coverage D, also known as Loss of Use or Fair Rental Value, is a crucial aspect of your Landlord Insurance policy that deserves your attention.

How does this coverage work?

Imagine your property is suddenly uninhabitable due to a covered loss, such as a fire. Your tenant must at least temporarily relocate, thus pausing your rental income. This Loss of Use coverage will pay for your loss of rental income. Now, isn’t it helpful – since your mortgage company will continue billing you every month regardless of your property or rental situation? 

The time to rebuild or fix a property may depend on many factors; therefore, having enough coverage to last for 1-2 years is advisable.

Coverage E (Personal Liability)

Coverage E (Personal Liability) coverage is one of the most important coverages for landlords. Since you own the property, you are responsible for it and for keeping your tenants safe and secure. As a landlord, you could face liability lawsuits for various things; therefore, purchasing sufficient Liability limits is very important (and adding an Umbrella policy is also advisable).

Since individuals or families own many rental properties under their names, their assets are being put at a huge risk. Imagine a liability lawsuit for 3 million dollars when you only have a $100,000 Liability limit. $2,900,000 may spill over to be paid to the injured party by you personally.

This coverage is one of the most inexpensive coverages but one of the most essential coverages out there. Make sure you purchase a sufficient amount of Personal Liability coverage.

Coverage F (Medical Payments)

Coverage F (Medical Payments) will pay for small immediate medical expenses regardless of fault. Consider this coverage a good gesture and a possibility to avoid a lawsuit.

Optional Coverage

The Optional coverage selection can be broad, depending on the insurance company. Knowing what kind of endorsements are offered in your Landlord policy is essential. These coverages are optional yet may be extremely helpful. Some of such Optional coverage examples are:

  • Extended Replacement Coverage
  • Building Ordinance or Law
  • Personal Injury
  • Wrongful Eviction
  • Privacy Invasion
  • Water Back up and Sewer/sump Overflow
  • Loss Assessments, etc.

If you are a landlord, work with an agent to help you get the correct policy type, proper form, necessary coverages, sufficient limits, and important endorsements, which will add necessary protection in case of loss. Ensure you understand all the exclusions and limitations of your Landlord insurance policy.

Contact one of our knowledgeable agents for your rental properties.

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