LandLord Insurance vs Renters Insurance vs Home Owners Insurance

5 Replies

I've noticed a fair amount of crossover in the various insurances.

So my question (and the topic I'd like to open for discussion) is the pros and cons of each.
Is there any crossover, are multiple insurances needed or are some redundant, can multiple properties be put on the same policy for added value etc?

My particular case involves Renting out home(s) in the state of Alabama that are fully paid for but feel free to discuss other settings.

For a landlord, you need landlord's insurance rather than homeowner's. It covers more landlord specific risks, and will either cover Fair Housing complaints or you can add a rider for that. Just because you are exempt from FH laws doesn't mean someone can't find a lawyer to sue you. It can cost $5,000 to $10,000 just to get a case thrown out of court. Also, HUD takes the position there are no exemptions for race-based discrimination, because that was outlawed in the Civil Rights Act of 1866, which contained no exemptions.

It is a good idea to require tenants to carry renter's insurance. It provides a pool for them to use if they suffer a loss, instead of looking around to see who they can sue. It also includes liability insurance, which could cover a deductible on the landlord's own insurance if the tenant burns the place to the ground or something similar.  Some landlords buy the renter's insurance themselves, and then include the cost in the pricing for the rent.  We know its all the same money going out the door each month for the tenants, but psychologically it really provides a competitive edge and makes sure they all have insurance.

@Robert Treherne Google what's called a "Captive". We are in process of creating one now for our single family rentals. It is a variant of self-insure. You legally create your own insurance company just for your rentals. We will be canceling our policies and converting to this 100%. We will keep our umbrella liability policy but have the Captive for everything else.

Robert, here are my thoughts which are blended from my Investor experience and my Agent experience:

Tenant insurance should always be required.  It's cheap and, as Denise said, your tenant will not be so anxious to sue if their belongings are covered by their own policy.  It provides liability insurance for them, which could also be considered a buffer for your own liability coverage in the event someone is injured on the property.  It also keep your insurance carrier happy knowing that you require it for your tenants.

As for Homeowner vs Landlord policies, the big difference is the first covers personal belongings and the second does not (or the coverage is very limited).  Landlord insurance can also pay fair rent to you should your rental property sustain damage that displaces your renter.  What you should be most interested in with landlord insurance is good liability limits and enough structural coverage to rebuild in the event of a total loss.  FYI, you cannot have homeowners insurance on a property that is not your primary or secondary home.

If you'd like to have multiple properties on a single policy, it will have to be a commercial policy.  You can buy a certain limit of coverage, say $1M, that covers all properties listed up to said amount.  The idea is that they will not all burn down at the same time, so $1M of coverage is sufficient for $2M worth of property.

Some landlords choose ACV (actual cash value) policies in order to save money.  That means you may only insure a dwelling for $150k even though it would cost $200k to rebuild.  Just be aware of the obvious risk involved with this "shortcut".  If it burns down, you will not receive enough from your insurance policy to rebuild it.

As always, I highly recommend to investors to find an Independent Agent who can explain all of your options to you and has the ability to shop your business with multiple carriers, both personally and commercially.

lots of misinformation here. 

@Mark Fries Captives can rarely be used for property exposures. Too risky. Now liability (the umbrella exposure) is what it can be used for. I cannot think of a reinsurer that would write over a rental property captive. 

@Jared Newsom a commercial policy does not allow under insurance. You would still have to insure at 80, 90 or 100% to value depending on your chosen coinsurance level.  

Great example on how this forum leads to reckless advice when it comes to insurance. 

To the OP @Robert Treherne  

Homeowners is for owner occupied dwellings. 

Renters are for the tenants of a dwelling. 

Landlord (technically called dwelling fire) is for owner occupied or tenant occupied dwellings. 

There are also commercial package policies. 

You can finance your risk through guaranteed cost (what most consider “regular” insurance), retro-rated (you receive a premium 50-60% off of guaranteed cost, but pay a portion of claims paid/incurred, up to a stop loss), low deductible (deductibles per occurrence or in aggregate from $50,000-$250,000), high deductible (above that $250k) or captive (arranging your own insurer for liability losses with reinsurance  put into place). 

The last 4 are types of self-insurance. 

There is a 6th option which in uninsurance (many will refer to this as self insurance, but as there is no financing in place it is just truly, hope and a prayer with no plan). 

So can you put 50 properties on one policy and pay less rate than one property?  Heck yes. For example a property policy may have a $0.55 per hundred rate on one prop. But the 50 properties might be $0.25. 

Now yes, you pay more premium for 50 vs 1. But you can really drop the per house cost. 

Hope this helps.  Ask any questions as needed. 

Renters Insurance- For the tenant and should be required. You can be added as interested party to receive notifications in the even the policy lapses. This covers the tenants contents, provides liability protection, and provides loss of use coverage. Loss of use would be if the house burned down they could receive compensation for certain costs for not being able to live in home. EX: Hotel cost, food cost, etc.

Landlord (Dwelling Fire Policy)- This policy is typically if you own the property and are renting it out, then you would purchase a Tenant Occupied Dwelling Fire Policy. This provides coverage for the dwelling (structure), offers liability protection, limited personal property coverage (appliances, etc.), and some policies will even offer coverage for libel/slander, wrongful eviction. 

Homeowners- Offered for Primary residence/owner occupied dwellings. This is a package policy that includes coverage to rebuild home, liability for home owner, and personal property included (typically 50-70% of Dwelling coverage). There are other coverage that can be included such as extended dwelling limits, building codes coverage, and equipment breakdown coverage. This is a requirement for any primary home with a mortgage. If the policy lapses the lender will typically force place coverage.

In summary you (as an owner) would only need to purchase 1 type of property policy depending on the occupancy. If you are renting, Dwelling Fire tenant Occupied. If you occupy the home as your primary residence, Homeowners policy. If you are the renter than a renters policy. You could not for example have both a Dwelling Fire policy and Homeowner policy.