Should I cancel my HOI now that I've converted my Primary to an Occupied LTR?

Question

Hello BP Fam -

A low-hanging fruit question regarding insurance on an SFR.  I recognized when reviewing the performance on one of my rentals that I may be overly insuring my property.  My goal is to maximize the NOI.  This property was a previous primary home, but since I have relocated out of state for work, I have purchased a new primary residence in the new state.  I decided to keep the previous home and rent it out; I have held rental property/landlord insurance of $80/mo on this previous primary residence, but I see that my Escrow account still pays $80/mo in homeowners insurance.

I am trying to navigate this with some sensitivity, but wonder if I can cancel my HOI within the escrow account since I am paying rental insurance with a 3rd party.

A) Is this a viable and good idea?  I'm concerned about the lender charging a due on-sale clause (or just being suspicious) if I contact them to cancel the HOI.  I may be inclined to share with them that this is now being rented.

B) The property is stabilized with a long-term tenant, thus why I have rental property insurance.  Does it make sense to keep the HOI if I have no intent on moving back in?

The HOI isn't breaking my net cash flow completely, but I am looking to optimize and understand the true performance of the property.

Am I thinking about this correctly?

John Mocker · Answer

Jarreau,

If I understand the post correctly, you are paying two policies on your past home, a homeowners and Dwelling Fire (Landlord policy).  If that is the case, you have duplicate coverage.  Further, the Homeowners policy should be cancelled back to the date that the other policy (landlord policy) was written.  The Homeowners Insurance company will need a copy of the Landlord policy to show that there was duplicate coverage.

Jon Puente · Answer

Hey Jarreau,

I would just call your insurance provider and let them know that your property is no longer a primary residence, and you are current renting it to a tenant full time.  They should be able to flip it to where it's a landlord policy, and not both.  You do not need two policies in place, only one.

The mortgage company will not report a due on sale clause, because you are going to keep insurance in place, it's just going to be a landlord policy for investment properties.  Very easy to do.

Tip: ALWAYS require your tenants to carry renters insurance for their personal belongings.

Great Question!

Jarreau Jackson · Answer

@Jon Puente & @John Mocker -

I appreciate the timely and direct insight! I believe I have it sorted out and will no longer be "double paying" or carry multiple policies.

After speaking with both the lender and insurer, it turns out the lender cut the check from escrow and it may have never been cashed by the insurer.   The insurer did not show my lender as the mortgagee.  Thus, my lender shows reserving insurance payments in escrow, while my insurer has been billing me monthly.

Now they both have follow-ups on their end to line out things administratively.

I NEVER would've been sniffing this much into one property had I not listened to the recent BP Money Podcast #285, which encouraged people to re-run their existing properties through the calculators to analyze actual performance.

Thank you again for your time!