What Is Landlord’s Insurance?

May 11, 2015 · Coauthored by Joe Cloer & Susan Cook

I have walked into some heartbreaking scenes after evictions. Renters can wreck your property — and I mean make your property unlivable, unfit, damaged beyond anything the security deposit covers. Some unmanaged properties look like anything from war zones to versions of Animal House. Often, a homeowner will rent out a property that he or she could not sell immediately because of a move, or because of being upside down in a mortgage, or both. Becoming a long-term landlord (more than about a month) is not always an investment choice; it is the only choice the owner has to avoid foreclosure, and those unplanned circumstances set the stage for big mistakes.

One of the biggest mistakes I often see is not changing the type of insurance on the property being rented. When your home becomes a long-term rental, your insurance coverage must change. The established time frame that defines a long-term rental varies by insurance company, but most carriers have three versions of a landlord insurance, called dwelling-place policies, to cover a rental home:

• DP-1 covers basic events like fire or vandalism.
• DP-2 covers weather-related damage, fire, and vandalism.
• DP-3 covers “open peril,” which may not be everything, but the important aspect of a DP-3 policy lies in its reimbursement to the homeowner at actual cost to replace, not at some prorated value.

Other policies exist to augment dwelling-place policies and fill in the gaps, such as loss of rental income (only used if the rental must be vacated for repairs — not eviction losses) and liability coverage.

The big question about landlord’s insurance: does it cost more than regular homeowner’s insurance? The simple answer — yes, it does. But believe me, you need this insurance. You really do.

Source — Bankrate.com