digest
Short Summary
Main recommendation: Do not use homeowners insurance on a property you rent out; carry landlord insurance (landlord policy) for the rental and require tenants to carry renters insurance for their own belongings. Homeowners insurance requires you to be an owner-occupier, and a claim tied to a rental can be denied, leaving you liable for potentially hundreds of thousands of dollars in damages and injuries.
Key Points
- Homeowners insurance covers owner-occupied primary residences, including repairs from fire, flood, or catastrophic events and the owner's personal belongings.
- Landlord insurance protects the investor, not the tenant, and covers loss of rent plus legal fees and potential medical expenses if a tenant is injured and sues.
- Landlord policies generally do not cover personal property unless it is used to maintain the property, such as a lawnmower or snow blower kept locked up.
- Tenant renters insurance covers the tenant's own belongings against events like burglary or vandalism.
- Landlord policies typically cost about 25 percent more than homeowners policies for the same property, mainly because tenants generate more claims, according to the Insurance Information Institute as cited by the speaker.
Details Worth Noting
- Concrete instructions:
- Confirm your property is owner-occupied before relying on homeowners coverage, since lenders may ask this when you buy.
- Do not keep homeowners insurance on rental properties you are renting out.
- Get landlord insurance for the rental, and make sure it covers loss of rent and legal/medical costs from tenant injury claims.
- Require tenants to carry renters insurance in the lease to cover their belongings.
- Keep personal items like lawnmowers or snow blowers used for property maintenance locked up, since landlord policies may cover them only in that case.
- Check with an insurance representative to confirm what your specific homeowners policy covers, such as slip-and-fall incidents away from home.
- The speaker's example: a tree falling on a rental during a storm, injuring tenants, would leave an owner with homeowners insurance 100 percent liable and would likely be denied as a claim.
Bottom Line
Insurance type should match how the property is used: owner-occupied homes get homeowners coverage, while rentals need landlord coverage plus tenant renters insurance.
