Homeowner's and Landlord Protector Policies

If you have fewer than four units and live in the building, all you need is a homeowner's insurance policy. But if you do not live in your rental property and it has four or fewer units, you need to take out a landlord protector policy. They are similar in many respects. Anyone who owns more than four rental units must take out a commercial insurance policy, and that one policy will cover multiple dwellings if the landlord decides to grow his business.

Homeowner's policies cover your family home, contents, and personal belongings. They also cover buildings that have up to four units, if you live there as well. But a homeowner's policy does not include personal property belonging to your tenants. (They have to protect themselves for personal losses by taking out renter's insurance.)

If you add an apartment to your home, don't assume it's covered — ask your insurance agent. Find out whether the premium on your house goes up because you now have a tenant. If it does, shop around to find out what other companies and agents have to offer.

Similar in many ways to a homeowner's policy, landlord protector policies are issued when you, the landlord, do not live in the building. But if you compared any two policies from different companies side by side, you might find that there may be differences as well, especially when it comes to premiums. Your search will go more smoothly if you understand what's available in a typical policy, what you should ask for, and why one feature may be more important to you than another.

Your insurance policies will not cover personal property losses incurred by your tenant — your tenant's electronics, clothes, and household goods are excluded. The only insurance available for those items is a renter's policy. Strongly encourage your tenant to get one — better yet, make it a requirement.

Typical Liability Coverage

Although your policy may designate payments for liability, you have options on how much coverage you want and what you're willing to pay for it. Typically the categories are:

  • Personal Liability: $100,000 to $300,000

  • Damage to Property of Others: $500 or more

  • Medical Payments to Others: $1,000 (per person) or a limit of $25,000 per occurrence

  • Standard Covered Losses

    It's very important that you understand exactly what is covered in property insurance, what exclusions there are, and whether your premium is higher because of where you live. High crime areas usually mean higher premiums. Living along the banks of a river that floods every ten years or so or near a fault line has a bigger price tag, too. Ask your insurance agents for an all-risk policy that covers damage caused by:

  • Frozen or bursting pipes

  • Fire and smoke

  • Heating or air-conditioning problems

  • Lightning, windstorm, and hail damage

  • Explosions

  • Falling objects

  • Riots or civil commotion

  • Glass breakage

  • Vandalism and theft

  • Physical loss to building

  • Sudden or accidental overflow of water or steam from plumbing, heating or cooling systems, or household appliances

  • Limbs or trees falling on structure

  • Collapse of building due to the weight of snow, ice, or sleet

  • Damage by aircraft or other vehicles

  • Freezing of domestic appliances

  • Sudden and accidental electrical damage to appliances and fixtures caused by power surge

  • Exclusions

    What you will not find in standard homeowner's and landlord protector policies is just as important as what is included. You should carefully consider your current and possible long-range needs. For instance, if a thick branch falls on your house your insurance will pay for repairing the roof and siding, but it will not cover the cost of cutting down and removing what's left of the tree unless you purchase additional tree debris removal coverage.

    Your coverage for theft and burglary will have limits on replacing your valuables, whether jewelry, furs, or expensive original art. Those have to be insured as an additional endorsement or rider on your policy.

    Losses from floods, earthquakes, and hurricanes are generally not included in a homeowner's or landlord protector policy. If you live in a flood zone or on a fault line, or along the Gulf or Atlantic coast, you will have to pay more to be covered from these extreme catastrophes.

    Your policy covers you for wind damage, but in a hurricane, the company might quibble about what was caused by the wind and what was caused by the surge of water. Have your agent spell it out for you before the next storm.

    For protection from extreme weather occurrences, either have it written into your policy for a higher premium or purchase a separate policy that will cover the damages.

    And if you live in an area where mudslides occur, ask if you are covered. Insurance companies recently have had tremendous losses from them and they may be exclusions as well.

    Shop around and find out how various companies handle extreme weather claims and what they charge policy holders to include them. You may find one policy covers more than another or that premiums vary widely. You may also find that these policies can offer lower premiums if you are purchasing a policy that has very high deductibles.

    Building Ordinance Coverage

    When you get insurance, consider getting building ordinance coverage. If your home is damaged, it will pay the additional expense of bringing an extensively repaired or remodeled structure up to today's tougher building codes. You didn't have to worry about meeting the stricter standards when you purchased the dwelling because it was grandfathered in, meaning it was built before those codes were adopted. But the new standards will be enforced if you should have to rebuild your home or do extensive repairs.

    Don't get a homeowner's policy that pays “market value” or “actual cash value (ACV)” on your property and personal belongings. Instead, ask for replacement coverage. Market value and ACV means the insurer will depreciate the contents of your home. If the insurer only has to pay the depreciated value, you won't get enough to replace your possessions at today's prices.

    Mortgage Insurance

    If you have a mortgage, your lender may recommend that you take out mortgage insurance. Basically, it's life insurance that will pay off the balance of the mortgage should anything happen to you. Of course, the lender would love to see you take it out because it guarantees that the bank or mortgage company gets paid in full on the loan. But it's costly and entirely up to you if you want it.

    Backups from Sewers and Drains

    These smelly, messy, unpleasant occurrences may not be covered by homeowner's and landlord protector policies. Nor are leaking or malfunctioning sump pumps. You can buy supplemental insurance in $5,000 increments if you think your building might be susceptible to backups because you live in an older section of town where sewer lines are crumbling or heavy rain storms make the area vulnerable for backups.

    If the cause of the backup occurs outside your house, call the city first. They may take care of backups caused by problems in pipes between the street and your house. Inside the house it's your responsibility to fix it.

    Umbrella Liability Insurance

    This reasonably costly insurance is targeted for landlords who own more than one rental dwelling and possibly multiple buildings. It pays for losses up to $1 million or more (over and above existing liability) and is generally not needed by landlords in owner-occupied dwellings or who have fewer than four units.

    Coverage for Vacant Properties

    Try to find a policy that covers loss of rental income if the unit is vacant as a result of a fire or other damage. You can get coverage for actual loss of rent for up to a twelve-month period. Loss of rents is standard in landlord protector policies, but not always in a homeowner's policy. Make sure you review the policy with your agent to find out what you have.

    Insurance companies will not pay loss of rent benefits if work on the property has not started within sixty days after the damage occurred. If there is no work in that time, the property is classified as “vacant” and claims could be denied.

    Vandals and thieves like to operate where they won't be interrupted. In vacant buildings they'll destroy or steal appliances and fixtures such as a sink or toilet. They also strip the property of all metals — pipes, light fixtures, and anything else they can find that's metal — to sell at a salvage yard. A vacant property is covered by your insurance as long as there is active rehabilitation going on. If work cannot start within sixty days, board up the windows and doors to discourage intruders and ask your agent whether you can cover the building with an interim insurance policy or a vacant property type of policy.

    Errors and Omissions

    When you are looking for an insurance policy, ask the agent whether she is covered by errors and omissions insurance. That protects you if your agent makes a mistake in your policy or forgets to include something. Anyone can make a mistake, but you don't want to find out about it the hard way — when you file a claim.

    If you hire contract workers or handymen to do work in your dwelling, find out whether they carry their own liability insurance; ask to see their insurance certificates before they start work. At the same time, have them sign a W-9 form for tax purposes. It will save you from having to chase them down later.

    Other Features to Look For

    Inflation guard protects you with automatic increases in your coverage. A demolition endorsement (sometimes called a rider) will cover your property if it has been destroyed to the point that what's left has to be demolished before new construction can take place.

    If you keep your property maintained and repaired, find out whether improvements made with your tenant's safety in mind will reduce your premiums. In the insurance industry, it's referred to as “difference in condition” or “conditions of premises.”

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    4. Homeowner's and Landlord Protector Policies
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