Often, the question gets worded as something along the lines of, “I own a duplex and live in one side and rent out the other side, what type of insurance do I need?” Other times, we may be asked, “I own a single-family home that I rent out to a tenant, my tenant doesn’t need insurance because my insurance covers their items, correct?”
No matter how the question is asked, the answer usually not as simple as yes or no. In today’s world, ensuring you have the right insurance coverage to protect yourself (and your tenants) is crucial. A local agency here in Tampa, Omega Insurance Agency, provides the following valuable information to explain the details a little further.
Often called “landlord insurance” or “rental property insurance,” this type of insurance is designed to cover and protect the property from the property owner’s perspective. Typically, this type of insurance is written on a DP1 or DP3 policy form and provides coverage for the building itself, any building extensions and/or additions (such as a carport, patio, or garage), limited personal property coverage (belonging to the owner), Fair Rental Value, and Liability coverage. Below is an explanation of what each of these items covers:
Building Coverage – Coverage A
Covers the primary building in the event of a loss to the property. In the questions above, this would be either the duplex or the single-family home. As the owner of the full duplex, you would purchase one insurance policy to cover both sides of the building.
Other Structures -Coverage B
This coverage provides protection for items not physically connected to the main dwelling. This can include a fence, detached shed, detached garage, etc. This coverage is provided separately and often, not required.
Contents – Coverage C
Personal property, or contents, coverage provides coverage for items the owner may keep at the property that is owned by the owner. For example, if I own a single-family home, I may decide to keep a lawnmower and cleaning supplies at the home in order to take care of the property. Note – this does not include items that a tenant may own.
Fair Rental Value – Coverage D
This coverage provides continuing income for the landlord should a property be damaged, and the tenant of the property be unable to reside in the home because of a covered loss. For example, if a fire damaged the building and the tenant is not able to occupy the home, the landlord would be out the monthly rental monies they were collecting. This is where Coverage D applies. The coverage provides the owner with continued rental income while the property is being repaired. Essentially, it is compensation paid to the landlord who is unable to collect rents due to a cause of loss covered under the insurance policy.
Liability – Coverage L
Arguably the most important coverage in the insurance policy, this protect the owner of the property for damages as the result of liability suits filed against the landlord. An example of this is if someone was visiting the property and slips and falls and it is determined that the insured (landlord) was negligent, the individual may file suit against them. In this case, the insurance policy would provide up to the selected coverage limit, should the insured be found liable.
So, what’s the difference between the DP1 and DP3 policy? For starters, the DP1 policy form is what is known as a named perils policy. This means that the policy only covers certain named items as a cause of loss. Those items include: fire, lightning, explosion, wind & hail, smoke, aircraft, riot & looting, vandalism, sprinkler leakage, sinkhole collapse, and volcano. The DP1 policy is also an “Actual Cash Value” policy, which means loss items are only covered at the actual cash value, rather than their replacement cost.
The DP3 policy form covers all of the items listed above in the DP1 policy form, but also includes any other cause of loss that is not specifically excluded. The DP3 policy form also covers losses at the higher replacement cost coverage, rather than actual cash value.
Why would anyone purchase a DP1 policy? Often, the DP1 policy form is cheaper to purchase than the DP3. Also, a particular property may not meet the insurance company’s underwriting requirements to be eligible for a DP3 policy, so a DP1 could potentially be secured to provide some type of protection.
Renters, or tenant, insurance is especially necessary for an occupant of a dwelling who is not the owner, but is renting or leasing a home, apartment, condominium, or any other type of home. The renter’s insurance policy is written on the HO4 policy form. As explained above, your landlord’s insurance policy does not cover your personal items and it does not cover your liability exposure. Provided below is a brief explanation of each coverage in a renter’s insurance policy:
Building Coverage – Coverage A
Not included on the HO4. Since you, as a tenant, do not own the property, you do not have an insurable interest in it. Therefore, there is no building coverage available on an HO4, renter’s insurance policy.
Other Structures – Coverage B
Also not included.
Contents – Coverage C
This coverage is what provides you insurance protection against loss to your personal items. As a tenant, you most certainly want to protect the items you own. Since your landlord’s policy does not provide that protection, the purchase of a HO4, renter’s insurance policy, is needed. This coverage provides protection for your items in the home such as furniture, clothing, dishes, electronics, and many other items. There are items that may be limited in the amount covered, so please speak to your insurance professional to ensure items you are looking to ensure are fully protected.
Loss of Use – Coverage D
This coverage provides you with additional resources to help you secure a different place to live in the event that the home you are occupying is damaged by a covered cause of loss. Similar to the way “Fair Rental Value – Coverage D” in the landlord insurance policy provides the owner of the property with loss of rent coverage, this coverage provides you with monies to rent a temporary home or pays for a hotel for a period of time until you locate a new place to reside or until repairs are made on the damaged property.
Liability – Coverage E
This coverage, much the same way as the landlord policy, protects you from liability claims that arise out of your use of the property. For example, if you are sued due to your negligent use of the property (forgetting to clean up a spill on the kitchen floor and a neighbor tripping while visiting, as an example) could lead to the neighbor suing you. Liability is often the most important insurance coverage in any insurance policy, and the HO4 is no different.
In conclusion, the main difference between the landlord insurance and the tenant insurance is that the owner of the property needs to insure the building, while the tenant of the property needs to insure their personal belongings.
There are a multitude of differences between each insurance company in terms of not only pricing but what is and what is not covered. It is important that you speak to an insurance professional today to make sure you are receiving the best available insurance policy to fit your unique needs at the best available price.