Plan to Rent Out Your Home – Landlord Insurance or Homeowners Insurance? (Part 2)

Plan to Rent Out Your Home – Landlord Insurance or Homeowners Insurance? (Part 2)

In part 1 of this series,  we looked at the various benefits of having a landlord insurance policy to protect your investments. Continuing, we’ll continue more factors to consider for adequately insuring your home when you rent it out.

The Risks of Renting Out

Essentially, the more people that are on your property, the greater the likelihood of a mishap. You as the landlord also have an increased responsibility for injuries on the property, whether to your tenants or your tenants’ guests, or even losing out on rent due to mishap that makes your investment property unlivable.

Insurers typically experience more claims on tenant-occupied properties. These reasons can include reasons like:

• Tenants typically don’t care for properties as well as owners would.
• Renters are less likely to either identify, report maintenance needs, and may be unfamiliar with a home’s systems (e.g. knowing how to shut off a flooding pipe at 2am)

Cost Comparison

If you were thinking that landlord insurance would be more expensive than homeowners insurance, you are correct in your assumption. According to the Insurance Information Institute, you can be looking at an average of 15% – 20% more annually for insuring your home as a landlord.

In recent years the average cost of homeowners insurance  was $1,096/year. Factoring in 20%, and that would put the average annual premium on landlord insurance to be $1,300/year.
As we discussed about length in part 1, the risk for short-term rentals actually increases your insurance, as underwriters  typically compensate for a larger number of people in your home increases the likelihood of an accident, as well the property remaining vacant upping the insurer’s risk—and your annual premium.

Supplemental Policies

While a landlord policy may seem comprehensive to your immediate needs as a landlord, it may be in your best future interests to consider an umbrella policy;  this can provide additional liability protection beyond the limits of your landlord policy. If you own more than one house, your net worth will begin to grow beyond your previous coverage needs. Umbrella insurance can be cheap, costing only an additional $300/year (varying by location and insurer), but that can provide $1 million work of liability coverage that you shouldn’t do without.

Damage to Tenants’ Belongings

Be aware that neither homeowners insurance nor landlord insurance will protect the personal items owned by your renters, only the structural elements. Typically, this is described as “walls-out” coverage, whereas your renters are responsible for “walls-in” coverage.

If you wish to avoid needless lawsuits, be sure to encourage your tenants to cover themselves with relatively inexpensive renter’s insurance  or include insurance a condition of your lease that provides this coverage.

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As you can see, there’s more to ensuring that your property generates a steady stream of income. One uninsured (or underinsured) mishap can mean the difference between renting your home out and having to downsize. That’s why we recommend you contact the expert advisors at RiskBlock  to be on your side and guide your finances towards a bright and prosperous future.