Which Insurance for This (Slightly) Complicated Situation?

Question

Hi everyone, just joined after reading a great deal here. Hoping like many to become a real estate investor over time, but for the moment I had a question which I'm having a lot of trouble figuring out:

What would be the best / most appropriate insurance configuration in this situation:

- My wife is the title holder for a single family home

- She does not live at the home

- Her parents live at the home, rent free

- Her brother pays the mortgage on the home and he plans to rent out two rooms in the house to long term tenants (strangers)

- Her parents will continue to live in the rest of the home, rent free (this is fine, just putting it here in case it affects the insurance)

- My wife and I are able to visit the home at any time and do so regularly to see her parents

All I want to make sure is that we (my wife) are covered from all angles on insurance. Up to now and before renting it out, we had homeowners insurance + umbrella liability.

Am I correct that we now need landlord's insurance + umbrella liability?

Thank you for your help in advance - it's been surprisingly difficult to find this out..

Ben Joseph · Answer

Thank you very much - good to have confirmation I'd understood everything correctly, as it's our first time with this.

Time to start getting quotes for a policy...

Jason Bott · Answer

@Ben Joseph the proper policy is you need is a Non Owner Occupied Rental Dwelling policy, commonly know as a Landlord policy.

You are correct in a Rental Dwelling policy will usually have Liability as part of the policy.  If you want higher Liability limits, then you would by an Umbrella.

Ben Joseph · Answer

Oh right, I understand now about the lease for the parents. Thank you for that.

I'm a little confused on the last bit you mentinoed about liability:

I thought that landlord (rental dwelling) insurance is itself the liability insurance. And then we add umbrella insurance on top of that, primarily to increase the landlord insurance's limits. Is that not correct?

Scott M. · Answer

My point about the lease for the parents was related to the insurance.  They may need one to get renters insurance.  And yes, the mortgage co would require the brother to get the insurance and then name them and your sister so you are correct that is the way it goes.

Don't forget liability along the way : )

Ben Joseph · Answer

Thanks for the reply.

There is no lease for her parents, but we're all ok with that. I expect there will be a lease for the new tenants in the separate rooms though.

Can her brother get the landlord insurance, put it in her name and then add himself and the mortgage company? Then my wife and I would get the umbrella insurance to add on top of that.

The reason I ask about doing it this way is that her brother has been managing the home and may want to handle finding the landlord insurance himself.

Scott M. · Answer

Rent free or no is there a lease agreement in place?  Wife should get landlord insurance and probably name the brother and for sure the mortgage co as additional insured / mortgagee clause.  And your parents should get renters insurance to cover their belongings.

Yes, always get general liability / umbrella.