Today, there are many accidental landlords and most of them do not know about home insurance coverage for rental properties. They are the homeowners who never wished to become landlords but the situation calls for like they purchased a new house and could not sell the one they left. Instead of having a home that is not used, they rent out the property. Others have purchased a vacation home and they found out that bringing in short-term tenants can help cover the expenses.
If you are among these landlords in Florida, you have to recheck your home insurance policy. In most cases, your existing policy will not be sufficient to cover your rental property even if it is the best home insurance in Florida, it will no longer qualify. Policy review must provide you with answers to these three important questions: Do you need a landlord’s insurance? What are your planned options? How much does it cost to insure your rental property?
Whether you are an investor or multiple rental properties or this is your first time, you must have a property protection. Rental property insurance will give you the following:
- Coverage of up to 10% of your dwellings occupied by a tenant.
- Coverage for personal liability for medical expenses and legal costs.
- Coverage for loss of rental income.
The big question is: Why do you need to have rental property insurance? If you cannot afford to lose the money earned from your rental property or replace your rental property, then you should get rental property insurance. Your homeowners insurance does not provide you the coverage of your home being rented. Also, it is beneficial to get one if you are:
- Moving because of permanent change of place and have not sold your home.
- Moving out and planning to rent it out temporarily or long-term.
- A landlord and you want your property protected.
Rental property insurance covers the following:
- Dwelling Coverage – This type covers damages of your property from hail, vandalism, fire and other dangers defined in the policy.
- Personal Liability Coverage – It covers legal fees because of property damage or injury claims that occur on the property as a result of covered losses. Also, it covers medical expenses in case a visitor gets injured or suffered a loss.
- Rental Income Coverage Loss – This will pay your rental income in case your property is under repair or rebuilt because of damage from covered loss.
If you are taking renters just for a few weeks each year, your existing homeowners’ policy will provide coverage but when rentals are more than occasional, you need to have rental property insurance. In case you are living in the same house with your tenant, all you need to do is to endorse your policy with the coverage called unit rented to others for the situation landlord-tenant. However, if you are living together in the same house with your tenant or you have a secondary home which you regularly rent out, in this case, you should have a separate policy.
Another important question to address is: When does a second home rental needs a separate coverage? According to Bill Mills, North Carolina’s Strategic Insurance Agencies Group vice president, "You have to make sure the company will even allow short-term rentals," and added that if it takes more than four weeks of renting out the property, then you need a separate coverage.
A lot of homeowners say that they should only stick with their homeowners’ policy. This is a risky thing to do because some claims may not be allowed by the insurer. Remember, florida homeowners insurance companies did not make the policy that the home will be rented, the policies created by your existing insurance do not include the issues of rental properties. If they are not aware of the rental, they have the right to deny coverage if something will happen to your home. This means that it is better to inform your insurer that you are renting the property to others even for a short period of time in a year.
Policies for rental properties have different names depending on your insurer but they are all considered as dwelling policies, they fall into 3 categories: DP-1, DP-2 and DP-3.
- A DP-1 policy is the basic; it covers the simple things like vandalism and fire.
- A DP-2 policy is much broader because it covers perils such as damage from hail, windstorm, vandalism or fire. Most have provision for collision, for example, if a car will hit your house.
- A DP-3 is a special kind of policy or it is called open peril policy except if the peril has been specifically excluded.
Most insurance brokers will suggest to the landlords to get a DP-3 policy. For instance, a DP-1 policy will provide you with actual cash value of your house while a DP-3 will provide you with replacement cost. With cash value like the one covered in DP-1, your roof that is a decade old will depreciate, this means that the value will not be the same. Unlike DP-3 where it covers replacement value, you will get the price of new roofing. Nowadays, most landlords are getting a DP-3 policy.
In addition, other insurers are offering landlord protective policies. They cover areas such as coverage of equipment breakdown for things like furnaces and boilers. Also, an important area to consider is the loss of income from renting your property because you have to empty it for repairs. Many landlords think that if their house is not occupied because the tenants left or has been evicted, they can claim for loss of income. This is not true. There must be a covered loss which causes you to lose income while your home is being fixed.
Also, make sure that your liability coverage is sufficient. It is advisable for landlords to insure their properties at $1 million on a rental. With this coverage, it will protect them for sued damages like indoor fall, someone slipping or an animal bite. This coverage will only cost a landlord an additional annual payment of $200 to $300.