The Difference between Homeowners and Landlord Insurance

For the average Homeowner, who is moving out of their home and wants to maintain ownership, at first blush there may not seem like a big difference in what kind of Property Insurance you need. But Homeowners Insurance is priced on, and includes coverage’s for, the owner of that residence. This can be quite different from the protections a Landlord will need when renting out the residence to others.

The assumptions, and in most cases requirements, of the insurance carrier is that the homeowner will exhibit a pride of ownership, and will maintain the property in the condition they would want to live in. While many tenants respect the properties they live in, not all do, and the very fact that they renting instead of being in a position to own means they will not have the means or motivation to maintain the property as well as the owner. But, before we can discuss the difference’s, let’s look at the various coverage’s involved.

Good coverage’s for Homeowners Insurance are:

Dwelling coverage:
Enough coverage to replace your home if it were to burn to the ground (local construction $ p.s.f. X sq. ft. of property).

Liability coverage:
Enough coverage to protect your assets at risk (Real Estate Equity, Investments & Income) from being liquidated, or attached, in a judgment against you if you were sued for monetary damages. But, it is much less expensive for the Homeowner as the chances of them inviting someone over who would sue them if they slipped and fell, are not very high.

Personal Property:
Enough coverage to replace your personal property (that which would fall out of the house if it we turned upside-down).
Loss of Use: enough coverage to rent a similar residence until your home was rebuilt (max time limit is 2 years)
Separate Structures: enough coverage to rebuild your detached garage, or work shed

Now let’s look at what a Landlord might need:

Dwelling Coverage:
again enough to replace the property, but in most Landlord properties the workmanship and quality of the fixtures are not as high as those found in personal residences. Thus the dwelling coverage could be adjuster to a lower cost per square foot.

Liability coverage:
This is the major difference with Homeowners because the Landlords exposure is so much greater. Tenants, in today’s litigious society, are more likely to go after the Landlord if they suffer a loss on the property, through no perceived fault of their own. And if they, or another stranger they invite on the property suffers an injury caused by the physical property (slip & fall), they also are likely to sue! For this reason, it is also a more expensive coverage then Homeowners Liability.
Personal Property; The Landlord, by the very fact that they are not living there, has a very limited need for this coverage. This is much less than a Homeowner would require.

Side note: it is important for the Tenant to carry Renters Insurance as it’s generally their Personal Property at risk, as well as they have a Liability exposure also. It is very inexpensive, and cross line discounts from their auto insurers can pay for most, if not all, of it!

Loss of Use:
For a Landlord this is called “Loss of Income”. If the property is damaged by a fire (for example) the Landlord needs this to pay the mortgage as the rent will not be being collected while the house is being rebuilt.

Separate Structures:
Again, a slightly higher risk for the Landlord, but generally the same coverage is needed as for the Homeowner.

Note: In the Homeowners and Landlord policies: the Personal Property, Loss of Use, and Separate Structure coverage’s can be simply a percentage of the Dwelling amount, and are not priced separately, but included in the Dwelling coverage premium. They are usually adequate, but if not, can and should be adjusted.

One would think that because the Dwelling coverage need not be as high for a Landlord as a Homeowner that the Landlord policy would be less expensive. But do not be surprised if the Landlord policy is as much, or even higher than a Homeowners policy would be, because the increased exposure and need for higher Liability limits.