many landlords fail to understand the full scope of landlord insurance. Not only does landlord insurance protect the dwelling, it also has liability insurance, loss of rents insurance and medical payments to others. 

 

The first step in determining what kind of insurance you need is understand the basic types of policies.

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There are three primary types of landlord insurance:

1. Dwelling Insurance Policy (DP)- Dwelling insurance policies cover more than simply fire damage. Like many landlord insurance options, Dwelling Fire Insurance is “a la carte” and capable of covering a wide variety of damage types

2. Business Owners Policy (BOP)- This type of insurance is for landlords that have multiple locations or more than 4 units per building. The easiest way to think about a BOP is that it combines property insurance with general liability insurance

3. Commercial Packages Policy (CPP)- The Commercial Packages Policy is best used for buildings with over 99 units. Like other landlord insurance packages, CPP is highly customizable and may name specific perils on the policy.

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Dwelling policies are the most commonly purchased policy in the real-estate investing market.  The dwelling policy and BOP policy have similar lines of coverage. The lines of coverage are:

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• Coverage A: Dwelling. The section of the policy that pertains to the cost of rebuilding and repairing your dwelling in the event that it is damaged or destroyed

• Coverage B: Other Structures. The section of the policy that covers the cost of rebuilding or repairing structures on your property other than your home if they are damaged

• Coverage C: Personal Property. The section of the policy that covers the cost of replacing your possessions.  This is does not cover your tenants’ positions. 

• Coverage D: Loss of Use. The section of the policy that covers the loss of rent while the home is not able to be rented during a covered loss. 

• Coverage E: Personal Liability. The section that protects property owners against lawsuits for injuries or property damage

• Coverage F: Medical Payments to Others. The section of an insurance policy that can cover medical costs if someone is injured on your property and does not sue you.

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In order to correctly be covered by an insurance policy you need to look at what perils are covered by the policy. There are dwelling policy 1, dwelling policy 2 and dwelling policy 3; this refers to what perils are covered under the policy. 

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Dwelling Policy 1 (Basic)

• Fire & Lightning

• Internal Explosion & External Explosion

• Windstorm & Hail

• Riot & Civil Commotion

• Smoke

• Aircraft & Vehicles

• Volcanic Explosion

• Vandalism & Malicious Mischief (this coverage normally has to be added by endorsement to the policy.)

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Dwelling Policy 2 (Broad Form)

• Fire & Lightning

• Internal & External Explosion

• Windstorm & Hail

• Riot & Civil Commotion

• Smoke

• Aircraft & Vehicles

• Volcanic Eruption

• Vandalism & Malicious Mischief

• Burglary Damage

• Weight of Ice & Snow

• Glass Breakage

• Accidental Discharge or Overflow of Water or Steam

• Falling Objects

• Freezing of Pipes

• Electrical Damage

• Collapse

• Tearing Apart, Cracking, Burning, Bulging

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Dwelling policy 3 (Special Form)

• Open peril - covers everything that is not excluded by the policy. 

 

The last item to look at is what is the settlement method of the policy.

Actual cash value (ACV) is the amount equal to the replacement cost minus depreciation of a damaged or stolen property at the time of the loss.

Repair Cost (Market Value) Policy This type of policy pays to replace, repair or rebuild your damaged property to a condition like what it was before the damage, using contemporary materials.

Replacement Cost A replacement cost policy will pay the amount needed to replace, rebuild or repair your damaged property to its original condition with materials of the same kind and quality.

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The most important part of purchasing investment property insurance is to talk with an insurance agent that specializes in this area.  Please call and we can discuss what your individual needs are and find a policy that fits your individual needs the best.