Homeowners Insurance Versus Rental Property Insurance

The fundamental distinction between homeowners and rental property insurance is the insured's status. As the name implies, homeowners insurance is for those who own their house and live in it full-time. Rental property insurance, alternatively referred to as landlord's insurance is designed for property owners who rent out one or more units to renters. The coverage is comparable, with a few noteworthy deviations reflecting their distinct missions.

Coverage Disparities

A basic homeowners policy is nearly necessary to secure a mortgage, and these policies typically provide adequate coverage for the average single-family home. While landlords may utilize their homeowners' insurance to cover rental properties, they are missing out on critical protections provided by rental property insurance. For example, homeowners insurance does not cover the loss of rental income caused by property damage. While a landlord who relies on homeowners insurance for rented homes may initially save money, he exposes himself to catastrophic losses in the event of an incident that falls outside the limits of a homeowner's policy.

Rental Income Loss

While a homeowner's policy is not required to cover a loss of rental revenue, rental property policies are. Landlords incur a loss of revenue when tenants are forced to vacate a rented property owing to damage or required renovations. Proper coverage protects the landlord, as insurance companies frequently include fair rental income coverage in rental insurance policies; fair rental income coverage compensates the landlord for rent lost when rental dwellings are uninhabitable.

Covered Losses

Both types of coverage cover damage to any permanent structures on the protected property caused by typical risks such as fire, wind, hail, theft, or vandalism. Rental property insurance policies typically include coverage for personal goods used with rental properties, such as laundry facility furniture. Homeowners' insurance provides coverage for the owner's goods within the home, including coverage for stolen valuables. Suppose a dwelling covered by homeowners insurance becomes uninhabitable due to a risk specified in the policy. In that case, the insurer will often pay temporary housing costs while repairs or renovations are completed. Additionally, both types of plans often offer liability coverage if a guest is injured or involved in an accident on the property. This safeguards the homeowner or landlord by providing legal representation and covering reasonable medical expenses for the harmed.

Limitations

Both homeowners insurance and rental property insurance have limitations. Neither insurance will often cover flood, earthquake, or water damage caused by a sewer backup, thereby leaving the insured uninsured in the event of these occurrences. Coverage amounts are limited, and if damages exceed those limits, the insured bears the loss; for example, coverage for stolen jewelry rarely surpasses $2,000 without obtaining an additional insurance limit. Rental property insurance does not provide coverage for a tenant's items or routine maintenance and repairs.