Should I Get Homeowners Insurance or Landlord Insurance?


UPDATED: SEP 2020 | 2 MIN READ

So you have bought a home and are crossing off the checklist of what new homeowners must do. Purchasing homeowners insurance, obviously, is on this list. The difference between homeowner’s insurance and landlord’s insurance depends upon what you plan on doing with your new home. Are you planning on residing in the property, or using it as an investment and renting it out to other owners? If you are planning to protect the home for renters, a landlord policy may be the best fit for you. But if you are protecting the home for your own personal use, then homeowners insurance will be your best bet. 

What is Homeowners Insurance?

Homeowners insurance is the policy you obtain when you plan on living in the home that you are taking out an insurance policy on. You also may have access to homeowners insurance as long as there are more people who live there than rent the space. This form of insurance is purchased in order to protect your home from any incident that may occur which can be from natural disasters, accidents, robberies, and more. Typically, these coverage options are highly customizable to best fit the homeowner’s needs. The coverage varies between each insurer and plan, but a few common forms of coverage you will encounter are listed below.

Dwelling Coverage

Dwelling coverage protects costs that arise from needing to rebuild or repair your home as a result of a covered peril. The list of covered incidents depends on your contract, but can include hail, fire, storms, and more. Overall, dwelling coverage can be seen as the type of insurance that financially protects you from damage to the structure of your home. 

Acts of Nature Coverage

Just as the name implies, the coverage offered under this umbrella covers all damage on a house that is a result of natural events. This can include any unforeseen, nature-related incidents which include, but are not limited to: hurricanes, hail, storms, earthquakes, and more.

Loss of Income Coverage

In times of devastation, loss of income coverage will help reduce costs after an incident has occurred to your home and you have lost employment. This can be used in a wide range of cases when the damage is from a natural incident and you do not have a source of income to pay for the recovery.

Flood Coverage

Flood coverage protects the home from any direct damage in the case of a flood. Flooding can occur from natural causes or an incident within the home but it will not be covered if it is a result of a sewer back-up. Most homeowners insurance companies don’t provide flood coverage outright; for more information, be sure to visit the National Flood Insurance Program website. 

Legal Fee Coverage

In the case of a legal dispute, your homeowners insurance will cover all legal fees involved if it is a part of your coverage. Legal disputes can include cases of personal injury, contract disputes, or personal property loss/damage. This clause may be already included in your contract – but if it is not, and you wish to include it, you must speak with your insurer.

What is Landlord Insurance?

Landlord insurance protects your home against any damage that may occur, but can only be purchased if you are renting out the home to other tenants. You may not be living in the home if you purchase landlord insurance. You would need homeowners insurance instead, unless you have more renters than full-time residents living  in the home. There are three types of landlord insurance policies that have different ranges of coverage: the DP-1 policy, DP-2 policy, and DP-3 policy.

The DP-1 Policies

DP-1 policies are also known as peril policies. The DP-1 policies are used to cover any incidents that occur that are covered under your policy and are dependent on what you have agreed upon in your contract. This is the least popular insurance policy for most landlords; however, it is the cheapest option. The DP-1 policy offers homeowners a cash value reimbursement, meaning they give you cash back for what is damaged at the building’s depreciated rebuild value.

The DP-2 Policies

DP-2 policies are similar to DP-1 policies, but they offer more protection and coverage for the home. DP-2 policies cover 16 different perils rather than the 10 covered through DP-1 policies. They also offer replacement cost value rather than the actual rebuild value. Having replacement cost value (RCV) rather than actual cash value (ACV) can save you thousands in out-of-pocket expenses.

The DP-3 Policies

DP-3 policies is the most common and complete form of coverage available to landlords. These policies are “all-risk”, meaning they cover any form of peril and claims are paid out with RCV reimbursements. The policy does not only protect the home while it is rented, but protects the home while it is vacant as well – providing year-round protection.

Comparing Homeowners Insurance and Landlord Insurance

Depending on the purpose for your home purchase, you will be able to decide which insurance option to get. If you bought a home to rent to lenders or to use as a vacation home rental, your best bet would be to choose a landlord insurance policy. If you plan on using the home for yourself (whether full-time home or part-time), you should obtain a homeowners insurance policy. The insurance policies cover the same perils, more or less. However, there are two main differences to note: liability, and personal property coverage.

Liability Coverage

Homeowners liability coverage is used to protect the homeowner from any lawsuits or legal disputes that are brought upon the homeowner for any injuries a guest may have encountered while at your home. This also covers any damages done by pets which live in your home. This coverage is only available in homeowner insurance plans and is not available for landlords.

Personal Property Coverage

Homeowner policies also offer personal property coverage to cover your property in the case of damage or a robbery. Personal property claims can be paid out in one of two ways: actual cash value (ACV), or replacement cash value (RCV). Similar to other homeowners options, the ACV value is a depreciated reimbursement based on the item’s value at present time. RCV is used to pay for the full, immediate replacement of the item.

Alternative Insurance Options To Aid Tenants

If you are a landlord and choose to obtain landowners insurance, there are still a few gaps in the policies that do not cover the tenants’ personal belongings. To protect the personal belongings of your renters, it is important for your renters to obtain renter’s insurance. This covers all damages done to their properties whether it is a result of a natural disaster, internal damages (such as a fire or flood), or a robbery.

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