Landlord insurance - things to consider

[Ryan Cruz]

Hi BP community,

So I’m in contract on a property in Parma, Ohio, and I’m shopping around for quotes on Homeowners Insurance. Given that I’ll be a Landlord, are there Landlord-specific things that I should be looking out for, regarding the type of policy and coverages that I should get? Compared to a policy for a residence that I’m living in, I won’t be having personal belongings in the house, so that’ll be the responsibility of the tenant to insure. I did speak with one insurance provider, and they mentioned a DP3 versus a DP1 policy. The DP3 covers more scenarios (water, weight of ice/sleet/snow, falling objects, in addition to all that DP1 covers) compared to the DP1 (fire, lightning, wind, hail, vandalism).  Also, if I remember correctly, the DP3 covers up to the replacement cost of the home, while the DP1 covers up to the market value.

I asked about the scenario of “tenant slips on [part of house], and now wants to be covered, or else will sue”, and the insurance salesperson talked about liability coverage that is typically added (we started at around $300k when cranking out a quote). We also took into account things like locks, presence/absense of security system, amount of deductible.

If there are other things that I should be considering in the course of shopping for a Homeowners Policy as a Landlord, and you can share those tips, I’d appreciate it.

Thanks!

[Jason Bott]

@Ryan Cruz

Every insurance agent has different insurance carriers and probably a slightly different opinion on how a property should be insured.  So if you are calling around for quotes from different agents, you are best to try and establish your wants and don't wants up front.

1)  Establish the coverage form you want.....What types of claims you want covered 

Least amount of coverage is DP1 (Basic), then DP2 (Broad), finally DP3 (Special) form coverage.  There is usually no pricing difference for the different forms, so always start by asking for Special Form coverage. 

***The only reason an underwriter will not provide this coverage is if the property has not been updated.  C properties usually only qualify for DP1, Basic coverage

2)  Establish the building value you want

If & When you have a claim, are you looking to rebuild or just recoup your investment?

Rebuilding a property will demand you carry a higher building value, usually closer to $110-$125 per sq/ft.  Looking to just recoup your investment, you could possibly push the value as low as $30 a sq/ft.  So, on a 1,000 sq/ft building, you could insure for a range of $30,000 on the low end, $125,000 on the high end.

****Insuring at very low property values usually means you will not get claims fully paid.  But again, if just recouping your investment is the goal, this could be an option.

3)  Establish the deductible you want

$1,000 deductible is usually the starting point with commercial policies. On a SFR, usually moving from a $1,000 to $2,500 deductible saves you $150 per year.

$5,000 & $10,000 are available, but usually make the most sense once you have several properties.

4)  Establish how long you want your rental income to be replaced when you have a claim.

Most SFR fires can be fixed in 6-8 months. That being said, coving 12 months instead of 6 months, may only cost another $10 per year.

5)  Establish your Liability Limit.

I never recommend lower than $1,000,000 form my out of state investors.  

A) It does not cost much.

B) You do not have the luxury of driving by on the weekend to check up on the property, so you may be the last one to find out that the Property Manager is not following through with running a responsible business.  And it is only a matter of time before a lawsuit is presented resulting from the property being neglected.