When you purchase a property to rent out for investment purposes, one of the major expenses involved will be insurance. If you own your own home, then you’re probably familiar with homeowner’s insurance. However, your insurance needs as a landlord simply will not be met by your standard homeowner’s policy, mostly because homeowner’s policies won’t cover any damage or events if the property is being rented out for income. So what is an aspiring real estate investor to do? Let’s talk about property insurance for rental properties!
Landlord Policy Package
Instead of homeowner’s insurance, you’ll want to take out a Landlord Policy Package, or landlord insurance, on each of your rental properties. Landlord insurance is designed specifically for property owners who rent their properties out to tenants and consists of dwelling property insurance and liability insurance.
Dwelling Property Insurance
Dwelling property insurance covers the physical structure of the building being insured. It does not, by default, include land or personal property coverage. Dwelling property insurance comes in various levels to meet the needs of all types of rental investors:
DP-1: Basic
DP-1 coverage offers just the bare bones. It is great for properties that are not insurable otherwise due to condition or age. Fire, wind, and lightning damage are often covered by DP-1 policies, which pay out the actual cash value (ACV) of the damage, minus any depreciation. An upgrade of coverage to replacement value instead of ACV may be available.
DP-2: Broad
DP-2 is the same as DP-1 but covers against damage for more peril types. For example, in addition to the perils covered in DP-1, DP-2 may also cover damage from falling objects, snow or ice damage, or water discharge from pipes.
DP-3: Special
DP-3 is a comprehensive, all-perils policy that closely resembles the traditional homeowner’s policy. It covers most types of perils and pays out at replacement value, meaning the landlord can replace damaged structures at no cost to them other than the policy deductible. DP-3s may also cover the landlord’s personal property, appliance replacements, loss of rent, and more. We highly recommend DP-3 coverage for all rental properties.
Liability Insurance
Renting out a property comes with some risks, and landlord insurance policies take this into consideration by including liability insurance in the deal. Liability insurance can cover bodily harm, property damage, medical bills, and more. This protects you in the case that anyone is injured or suffers damage to their property while at your rental property. We recommend that you carry liability insurance with a policy amount equal to or greater than your net worth.
Require Renter’s Insurance of All Tenants
As you can see, the Landlord Policy Package does not cover any of the tenant’s belongings. This means if a peril occurs and there is damage, injury, or loss of the tenant’s property, they are fully responsible for paying the bill. To avoid conflicts with tenants over who should cover what, we highly recommend that you require all tenants to maintain their current renter’s insurance while residing at your property.
Property Management Services in Southwest Florida
Need a helping hand when deciding how to insure your Florida rental properties? Here at Douglas Realty Property Management, we offer expert advice to all our customers so that they are fully protected. Call us at 239-542-6906 or contact us online to find out more about our professional property management services in southwest Florida.
