What insurances should I be getting?

Question

Hello everyone,

I hope you are doing well.

I am a bit confused on which insurances to get, i know there is the homeowner insurance, and I will be requiring my tenants to have rental insurance. Does having an umbrella policy or an LLC for a property allow me to avoid buying a homeowner insurance?

Thank you,

Antonio

Frank Greg · Answer

An umbrella policy would suggest you already have some sort of initial or standard insurance policy; the umbrella policy usually exceeds a standard policy coverage or limit. There usually can be some confusion in regards the nature of protection as it pertains to an LLC. The LLC only deals with protecting you from personal liability -- sort of like prevents you being held liable or arrested for the acts or crimes of a relative (the llc) who is legally distinct from you.

Actually.. you can in fact be arrested for the acts of the LLC but that is a different discussion.The LLC typically does not protect you from any damage that may occur as a result of a physical disaster or other hazards such as: floods, fires, hurricanes, earthquakes etc.

Cameron Moore · Answer

To clarify, a normal Homeowners policy is NOT what you need for your rental properties. It is called a DP1, 2, or 3. (Different leveles of landlord policies). Any agent/broker will know what you mean if you just ask about landlord insurance. Yes, your tenants should have renters to protect their items and possible liability.

I agree, an umbrella policy is supplemental. In simple terms, your base policy (Landlord) will carry between $300k and $500k of Liability coverage. In the event of a lawsuit, if you have a lawsuit for $1M then your base policy covers the first $500k then the Umbrella covers the rest. It is a safety net!

Check out my other post about Umbrellas: https://www.biggerpockets.com/...

Eliott Elias · Answer

Work with a mortgage broker on this, you want long term rental insurance. You want to make sure in your tenants insurance you are included as additionally insured.

Patricia Steiner · Answer

No...Umbrella Insurance is a supplemental policy to your property insurance that kicks in if the costs exceed that of the property insurance.  Depending on the type of property you have, you'll need HO3 (Homeowner's) as a minimum. Having your Tenants purchase renter's insurance is great - but make sure they acquire it as "with Landlord as additional insured" so that checks are payable to both of you for damages. You'll also want proof of engagement prior to the tenants moving in along with their security deposit.  Here are two articles that are worth reviewing on Umbrella Insurance and LLC versus Umbrella for best protection:

https://www.investopedia.com/a...

https://www.apartments.com/ren...

Hope this helps...

Account Closed · Answer

Echoing @Rod Hanks, you do not need homeowners insurance (HO3) but a dwelling fire policy (DP) or a commercial package that is tailored for landlords.  With Homeowners insurance, a big chunk of your premium will be allocated to cover the personal belonging of your tenant.

My advice to you is to research landlord insurance or consult an insurance broker.

Antonio Chelala · Answer

Excellent explanation! Thank you John!

John Mocker · Answer

Antonio,

A couple of points/corrections:

1. if it is an owner occupied 1-4 family house you can get a homeowners policy from many companies.  If the house is not owner occupied, the most common form to cover it is a "Dwelling Fire Form"

2. Purchase a DP3 form of the Dwelling Fire policy if at all possilbe.  That is the most comprehensive.  The DP1 is the least coverage and DP2 is more coverage than DP1 but less than DP3.

3. The Umbrella policy covers if the Liability coverage of the underlying Home, Rental Dwelling, Auto, Boat, Motorcycle, Snowmobile, policy is exhausted in a claim.  It does not provide any property coverage.

Antonio Chelala · Answer

That is understandable, thanks for the answer. When you say that the LLC does not protect me from any damage due to a physical disaster, do you mean that tenants tend to sue landlords in case of those events?!

Thanks!

What insurances should I be getting?

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