How is Insurance for Landlords Different from Homeowners Insurance?

Around 36% of households in the U.S. rent the homes or apartments they live in, while the rest own their homes. As a result, owning rental properties is a great way to earn long-term revenue.

If you have a home that you want to rent out, you might need to update your insurance policy on that house.

Homeowner’s insurance is one product you can buy to protect a home, but if you rent a house to someone, you’ll need insurance for landlords.

What is the difference, you might wonder, between homeowner’s insurance and landlord insurance? Continue reading this guide to learn what these products are and their differences.

How Risk Effects Insurance

Homeowner’s insurance is not the same as renter’s or landlord insurance, even though they all cover homes and dwellings.

An insurance agency offers different products for different purposes, and a property’s risk level is one of the reasons they have various types of insurance products.

Risk is a major concern to insurance companies, and they take many steps to determine a person’s risk level when offering insurance. As a result, people tend to pay higher rates when they have higher risk levels.

So, how does this factor in with homeowners insurance and insurance for landlords?

The answer is that homeowners tend to have lower risks than tenants renting a place. Insurance companies know this from statistical information.

They know that homeowners tend to file fewer claims than landlords. As a result, home insurance presents a lower risk to insurance companies than landlord insurance.

The result of this is that homeowner’s insurance tends to cost less than landlord insurance.

The Purpose and Basics of Homeowner’s Insurance

Insurance companies offer homeowner’s insurance policies to people who own and live in these homes. Therefore, to purchase homeowner’s insurance for a house, you must own it and live in it.

If you don’t own the house, you can’t buy a homeowner’s policy, and you also can’t buy one if someone else lives in the home.

If you live in two homes, you can typically still buy homeowner’s insurance for both. However, you might pay less for the insurance on the home you’re at more often.

So, what is homeowner’s insurance? The answer is that it’s a product that provides protection for the home you own and live in. It provides several types of protection that you need for your house:

Liability Coverage

If people come to your home and end up with injuries, your liability coverage with your homeowner’s insurance policy pays the damages.

You should always carry liability coverage on a home, even after paying off the mortgage.

Dwelling Coverage

The main reason you have home insurance is for the protection it offers for your dwelling – your home’s structure.

If your home experiences damage from a peril that your plan covers, your insurance plan compensates you for the damages.

Personal Property Coverage

Your home insurance plan also compensates you for your personal property if you lose any because of a covered peril. Your plan might have limits, though, so you should ask an insurance agent to ensure you have enough coverage.

Additional Living Expenses (ALE) Coverage

ALE provides compensation if you must leave your home for a temporary period after experiencing damages to your house. The damages must be from a covered peril.

The ALE coverage you have with your policy compensates you for the extra costs of living you encounter after damages occur to your home.

Each of these is important to have when you own a house, and you should realize that lenders require home insurance. If you owe money on your house, you can’t go without having home insurance.

The Purpose and Basics of Insurance for Landlords

Insurance for landlords is a form of business insurance. While it provides some of the same coverages for a house, it doesn’t provide all the same coverage as a home insurance plan.

Insurance companies require different insurance plans for people who own homes they rent to tenants. They often call this landlord insurance or insurance plans for landlords.

Landlord insurance provides protection in two main areas:

1. Liability Coverage

As described above, liability coverage protects you from lawsuits that arise from guests encountering injuries at a property. As the owner of the rental house, you can protect yourself by purchasing liability coverage.

2. Dwelling Coverage

Your landlord insurance policy also covers the structure. If anything happens to the house that the insurance policy covers, you can file a claim for compensation.

Landlord insurance doesn’t cover the tenant’s personal things. If the tenant wants coverage, they’ll need to buy a renter’s insurance plan.

Landlord insurance tends to cost more than homeowner’s insurance, even though it doesn’t provide as much coverage. The reason for this is that the insurance company assumes a higher risk level when insuring a rental.

Steps to Take When Renting a House to Someone

When you rent a home to someone, you can require that the tenant purchase insurance for renters.

Insurance for renters provides coverage for the tenant’s personal possessions. It might also provide other forms of coverage, depending on the plan.

You can also set rules to reduce the risk level with the tenant. For example, you can prohibit smoking in the rental. You can also restrict the use of candles.

You may also want to use thorough tenant screening procedures to choose a tenant that will care for the property well. Choosing the right tenant is vital when renting.

Get the Right Insurance for Your Rentals

As you can see, a basic homeowner’s insurance plan is not suitable for a house you rent to someone. Instead, you must purchase insurance for landlords to have the coverage you need for your rental home.

If you live in New Jersey or own rental properties there, you can contact us at Central Jersey Insurance Associates for an insurance quote or to learn more about our products.