Insurance Coverage for Rentals

Investing in landlord insurance can pay off in several ways, making it a smart business decision. And here’s the good news: it’s tax deductible as a business expense.

When it comes to offering a basement apartment for rent or listing your own home as a short-term rental for an event like the Preakness, questions might arise concerning what homeowners insurance covers and whether landlord insurance would be necessary.

Homeowners insurance is usually reserved for owner-occupied residences, but if the home is only being rented out occasionally for something like a special event, that policy should cover the situation. Make a call to your insurance agent to be sure: It’s possible that adding an insurance rider to the existing policy could be necessary.

Homeowners Policy

A homeowners insurance policy covers four important things:

  • The house itself, in case the structure is destroyed by fire or another disaster.
  • The things in the house, including furnishings, clothing and other personal belongings.
  • Liability for personal injury or property damage, if an accident occurs on your property.
  • Living expenses or costs that would be incurred if the home becomes uninhabitable.

Landlord Insurance

A landlord insurance policy covers:

  • Property damage
  • Liability if the landlord is sued.
  • Income loss.

It sounds similar to homeowners insurance, but it costs a little more — up to 20% more. For instance, the average annual cost of homeowners insurance in Maryland is $824, so a landlord policy could average about $988. The cost is based on the replacement value of the property, the policy limits, and the extent of the coverage.

It’s important to purchase landlord insurance for the protection it provides. If a natural disaster destroys the building, it would cover replacement. If an accident on your rental property results in financial loss, it would cover the payment. If an injury occurs on the property, that would be covered under liability. If for some reason the rental property becomes uninhabitable, lost rental income could be reimbursed.

Three Coverage Options

Landlord insurance can also be referred to as a dwelling policy and is sometimes called landlord protection or dwelling protection. Three levels of coverage are available: DP1, DP2, and DP3.

  • DP1 is the basic policy, insuring against hazardous events such as a fire.
  • DP2 is slightly broader, naming protection against things such as hailstorms and vandalism.
  • DP3 is more comprehensive, offering “open peril” coverage meaning that unless the hazard is specifically excluded, the event is covered.

The majority of landlords choose DP3 insurance for its broad coverage. For instance, a DP1 policy would offer only cash value on the building in the event of a disaster, while DP3 would cover full replacement costs. Receiving cash value means the number is lower due to depreciation, because the age of the building is taken into account. Replacement value is a calculation of what it would cost to rebuild in today’s actual dollars.

Protection in Court

If an unhappy tenant decides to sue, landlord insurance can be invaluable. A liability policy may cover defense costs, plus any judgment or settlement, up to the specified limit.

A tenant who suffered injuries after falling on a broken stair or ice in the parking lot might decide to sue, and a lawsuit claiming negligence would be covered. If a pipe bursts and water floods the tenant’s belongings, the policy would cover those damages. As a landlord, it’s also advisable to make sure that your tenants get renter’s insurance to cover their personal property.

Lusk Law, LLC

Lusk Law, LLC specializes in assisting landlords, helping to avoid litigation when possible and ready to actively represent our clients in court when litigation is necessary. Our experienced attorneys have provided legal counsel and representation to landlords in Howard County, Baltimore County, Baltimore City, Frederick County, Carroll County, Washington County, and Anne Arundel County, and other counties in Maryland.

Contact our office to set up an initial consultation by calling 443-535-9715.

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