Which type of insurance?

Question

Hello,

I plan on doing a lease to own on a property we recently renovated and I am wondering what type of insurance do we need?
Do I need to get landlord insurance or do I just get regular homeowners insurance and have the renter pay for renters insurance or is there something else I am not thinking of?

Pierre Guirguis · Answer

From a lender and insurance standpoint, this is still treated as a rental until ownership actually transfers.

Typically you would carry a landlord (dwelling) policy in your name to cover the structure and your liability, and the tenant would carry renters insurance for their personal property and liability.

Even in a lease-to-own setup, most lenders and insurers do not want homeowners insurance in place once the property is tenant-occupied, and the tenant generally should not be insuring the structure.

It’s also worth making sure the lease language is clear that ownership has not transferred yet, since that can affect how insurers and lenders view the risk

Jared Townsend · Answer

When does title transfer? If you still hold title, I'd get landlord insurance.

If you have transferred the title and hold a note, make sure you're listed as the mortgagee on the owner's insurance policy. This will notify you of renewal, payments due, cancellation, etc. and also extend coverage to you.

Alex Morales · Answer

Good question and Jared's advice on landlord insurance is spot on. For a lease-to-own specifically, here's how I'd think about it:

You definitely want landlord or dwelling policy (DP-3) rather than standard homeowners (HO-3). Even though the tenant has an option to purchase, you still hold title and carry the risk until that option is exercised. Standard homeowners policies often exclude coverage if the property isn't owner-occupied, so you could end up with denied claims.

A few additional things to consider with lease-to-own:

1) Make sure your policy covers the scenario. Some insurers ask about lease-to-own arrangements, so be upfront with your agent. You don't want coverage issues down the road because they didn't know the full situation.

2) Require renters insurance from your tenant-buyer. Their policy covers their personal belongings and liability. Your landlord policy typically only covers the structure and your liability as owner.

3) Florida is a tough insurance market right now. Shop around, consider Citizens if private options are too expensive, and look at bundling with your auto or other properties for discounts.

4) Since you mentioned you recently renovated, make sure your coverage reflects the improved value of the property. Replacement cost coverage is better than actual cash value for recently updated properties.

What's the term on your lease-to-own? That might affect how you structure things, especially if the option period is short.

Which type of insurance?

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