Investment Properties

Investment Properties

Renting out a property you own?

The insurance you need for a rental home is different from the coverage on your primary residence.

Here is what you should know about the various types of landlord insurance available to you.

Plenty of folks along the I-85 corridor and across the Piedmont region never planned on becoming landlords. Maybe they bought a bigger house and the old one sat on the market too long. So they started renting it out.

Others picked up a second home near Lake Norman or in the Blue Ridge foothills, only to realize they needed tenants to offset the carrying costs.

If you are a first-time landlord, pay attention: you need to take a hard look at your homeowners insurance. Chances are your current policy does not cover a home that tenants occupy. Most standard homeowners policies are written for owner-occupied dwellings, and yours no longer fits that description.

Your policy review should answer three questions. First, do you actually need a standalone landlord policy? Second, what types of landlord coverage are available? And third, what should you expect to pay?

When You Need Landlord’s Insurance

If you only rent the place out for a couple of weeks each year, your homeowners policy will usually still apply. Once rentals go beyond occasional use, though, a standard homeowners policy is not enough.

“If you live in the same home as your tenant, you can typically add a unit-rented-to-others endorsement to your homeowners policy,” explains one independent insurance agent in the industry. “But when you move out and lease the whole property, or you own a secondary home that you rent regularly, a separate policy is the only way to go.”

How many weeks of rental activity pushes you past that line? It varies from one carrier to the next. Some draw it at four weeks per year. The safest move is to tell your insurer you are renting the property as soon as you start, even if it is only a few weeks annually.

Why not just keep your regular homeowners policy in place? Because any claim you file while the property is tenant-occupied could be denied outright. If the carrier does not know tenants live there, it has every right to refuse coverage when something goes wrong. Transparency with your insurer is always the smarter play.

Know What Type of Landlord’s Insurance You Need

Landlord policies go by different names depending on the carrier, but they generally fall under the umbrella of dwelling policies. There are three main tiers: DP-1, DP-2, and DP-3.

A DP-1 policy is the most basic. It covers straightforward perils like fire and vandalism, and not much else.

A DP-2 policy casts a wider net. It covers named perils, including windstorm damage, hail, fire, vandalism, and even vehicle collision with the structure.

A DP-3 policy is what the industry calls a “special form” or “open peril” policy. Unless a specific peril is excluded in the contract, it is covered. This is the broadest protection you can buy.

Most insurance professionals recommend a DP-3 for landlords. One important difference: a DP-1 pays actual cash value on the home, which depreciates with age. A ten-year-old roof gets written down significantly. A DP-3, on the other hand, typically pays replacement cost, so you get the price of a brand-new roof. That gap alone makes the upgrade worthwhile for most property owners.

Some carriers also offer landlord protective policies that bundle in extras like equipment breakdown coverage for boilers and furnaces.

Loss of rental income coverage is another piece worth adding. If a covered event forces your tenants out during repairs, this coverage replaces the rent you lose in the meantime. Keep in mind that a vacancy caused by a tenant leaving or being evicted does not qualify. The loss has to stem from a covered peril.

Do not skimp on liability limits either. Carrying at least $1 million in liability on a rental property is a smart baseline. Liability coverage defends you if a tenant or visitor sues over an injury on the premises, whether it is a fall on the stairs, a dog bite, or a slip on an icy walkway. Bumping from $500,000 to $1 million in coverage usually adds only $200 to $300 per year.

The Cost of Landlord’s Insurance

Yes, a landlord policy will cost more than a standard homeowners policy on the same property. But the difference is smaller than most people expect.

In the inland Carolinas, a typical dwelling fire or landlord protective policy runs between $800 and $1,200 per year. A comparable homeowners policy on the same house comes in around $700 to $1,000, depending on square footage and location along the I-77 or I-85 corridors.

We also strongly recommend requiring your tenants to carry renters insurance. It covers their personal belongings and provides a layer of liability protection that benefits both them and you if something goes wrong. Make it part of your lease agreement.

Types of insurance needed:

• Property (Hazard & Fire) Insurance
• Liability Insurance
• Water & Sewer Backup Insurance
• Flood Insurance
• Wind & Hail Insurance
• Loss of Income Insurance
• Umbrella Insurance
• Worker’s Compensation Insurance

Safeguarding your investment properties starts with the right policy. Contact us to talk through your landlord insurance options with one of our agents.

Get Your Insurance Quote Today!