homeowners insurance v.s. landlords insurance?

Question

What would be the downside to keeping the homeowner's insurance rather than switching to a landlord's insurance when you put a house for rent? I currently have homeowners insurance with Allstate, and the landlord's insurance they are quoting is higher than what I pay now.Can I just keep the current insurance? What would be the downside?

Can someone recommend insurance companies for property in Fremont, CA?

Stuart Udis · Answer

Carriers price their coverage based on  risk. A tenant occupied properties will be deemed higher risk than owner occupied properties. This is why your premium quotes are coming in higher. You can shop around for other carriers who may be more aggressive with pricing in your market.  Review your current policies coverage and see whether there is an exception for rented property. There's also additional coverage you are missing out on without the appropriate policy in place. As far as downside, how about denied coverage?

Courtney Urbanek · Answer

@Niranjan P Ghate

If you want extra liability protection for your rental property, there are a few options to consider:

1. Umbrella Insurance: Umbrella policies provide coverage across multiple types of liability insurance. For example, if you have commercial auto insurance, business owner’s coverage, and rental property insurance, these are all different lines of liability coverage. An umbrella policy can extend coverage across all of them. If you have multiple types of liability exposure, an umbrella policy may be the right choice.

2. Excess Liability Insurance: If you only have one type of liability coverage, such as premises liability for your rental properties, an excess liability policy might be a better fit. It provides additional limits above your existing policy, but only for that specific line of coverage.

3. Increasing Liability Limits Per Location: Often, the most affordable and straightforward option is simply increasing the liability limits on your current policy. For instance, coverage may start at $1M per occurrence with a $2M annual aggregate per location, but can increase up to $2M per occurrence with a $5M annual aggregate per location.
Many investors choose higher limits for added peace of mind. This approach can be more effective than excess liability coverage because if an excess policy is exhausted, the remaining properties may be left unprotected.

Courtney Urbanek · Answer

Hi Niranjan,

That’s a great and very common question. Here are some important reasons why keeping a homeowners insurance policy on your investment property may not be the best choice:

1. Limited Liability Protection:
Homeowners policies typically provide lower liability limits, usually between $100,000 and $500,000. While that might be sufficient for a primary residence, it often falls short for rental properties, which carry higher risks. In contrast, landlord policies are designed specifically for rentals and usually start at $1 million in liability coverage per occurrence.

2. No Coverage for Lost Rent:
Landlord policies typically include Loss of Rents coverage, which reimburses you for lost rental income if the property becomes uninhabitable due to a covered event. Homeowners policies generally do not offer this protection.

3. Coverage Gaps and Exclusions:
Homeowners policies often exclude claims related to tenant-caused damage and other risks unique to rentals. This leaves critical gaps in coverage that a landlord policy is specifically designed to address.

Cost vs. Coverage:
Many investors are tempted to keep a homeowners policy because it seems more affordable. However, these policies do not provide the appropriate protection for rental properties. Choosing a lower premium at the expense of proper coverage can lead to denied claims and serious financial consequences.

Additionally, if you continue to insure a rental property as owner-occupied, the insurance company could deny any claims based on material misrepresentation, which is a form of insurance fraud. This could leave you personally liable for damages that a landlord policy would have otherwise covered.

Li Ou · Answer

How much higher is the landlord insurance? I’m in the same boat as you, I’m also in the Bay Area, but I’m in Pacifica

Niranjan P Ghate · Answer

@Courtney Urbanek, @Stuart Udis,

Thank you for educating me! I was not aware of the risks you mentioned. Looks like I need to get some quotes for landlords insurance...

The first one I tried was Farmers Insurance, and they require me to move my auto insurance to them. I have also got a quote from Steadily Insurance, but I had not heard of them other than on BiggerPockets.

What would your thoughts be on also getting an umbrella policy? Would I need one?

Thanks,

Niranjan

homeowners insurance v.s. landlords insurance?

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