What is Landlord's insurance?

What is Landlord’s Insurance?

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 home owner 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 - 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 polices 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.

If you have a question about whether you need this insurance watch this video to help you make up your mind.

Source – Bankrate.com