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What is Landlord Insurance?
Landlord insurance is form of fire policy that has much the same coverage as a homeowners policy but is designed specifically for protecting a property rented to others and protecting the landlord's liability in a dwelling he owns but does not live in. "Homeowner" means "owner occupied." A rental property is "tenant occupied." When the owner of the house is not the occupant, then the coverage changes in important ways. If the occupant is a tenant paying rent then the policy is adapted to cover the differences in the risk. Generally it is assumed that a tenant is a higher risk than an owner in that the tenant does not have the same interest in the house as the owner.
In addition to covering the cost of replacing the structure and any contents that belong to the landlord, the rental property insurance will provide coverage for Loss Of Rents should the house become uninhabitable as the result of a fire or storm damage and the tenant is no longer paying rent. The tenant is forced to move elsewhere while the house is being repaired. The insurance will pay the lost rent or a percentage of it for a designated period of time, giving the landlord his rental income that he would otherwise have lost.
Here are the two main categories of Landlord Insurance for houses or condos:
1. Tenant-Occupied Dwellings: You are a landlord collecting money as rent from a tenant. This generally refers to long-term tenancy. You are renting it based on a lease for as long as you can. It is an investment property or income-producing property and you don’t live there. Among other things, the liability coverage on this home is different than the liability coverage on your owner-occupied dwelling. It protects you against lawsuit as a landlord. Also, in the event of a claim it will reimburse you for Loss of Rents if your tenants are forced out of the house because of a fire and are no longer obligated to pay rent. If there is a loss that is covered by your policy, like a fire, the house will sit empty until fixed and you would otherwise be deprived of the income but for the Loss of Rents coverage.
2. Vacation Rental, Seasonal Rental or Short-Term Rental Dwellings: This is the second type of Landlord policy. It usually involves short term tenancies with multiple different occupants during the year. This is really a business. It requires scheduling, deposits, cleaning, etc. It can include Bed and Breakfast-type rental dwellings. Very few companies want to insure short-term rentals. As you can imagine this is a much higher risk than a long-term tenant. It was not that long ago when such a policy had to be written as a commercial insurance policy. Vacation Rental use may be mixed with a Secondary or Vacation owner-occupied use where you occupy the house some parts of the year and rent it out during other parts of the year. Part of the year you are the owner-occupant and part of the year you are a landlord.
The question is: What do you plan to do with your rental property?
1. Rent it out to a long-term tenant,
2. Rent it on a short-term basis and occupy it yourself at various times throughout the year or
3. Rent it short-term all year around to various occupants?
This decision is important in order for your insurance to properly cover you. If you transition the house from an owner-occupied to tenant-occupied dwelling, you become a landlord. There is important coverage in a landlord policy that is not in a owner-occupied homeowner policy.
You know what to do if you have questions about your landlord insurance quote, right?
Call me, Steve, Your Insurance Pal.
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