Landlord Insurance. What is it and How is it Different than Homeowners Insurance?

This time of year, many military families are moving from one duty station to another. Leaving behind friends, family, and the home they purchased a few years back. Some sell their home using that money to buy the next. Others, however, decide they want to keep that home and rent it to another family. 

For some families this is a source of extra income. For others, it is a way to keep the home until they return some day. Whatever the reason, there are always things to be aware of when deciding to keep and rent a home. One of those things is insurance. 

We get several emails a year asking about rental homes and how to property insure them. Can I just keep the policy I have? Do I need a new or separate policy? Do I even need insurance at all? To better answer these question we reached out to our friends at Armed Forces Insurance to help explain what insurance is needed for your rental home and how that compares to regular homes insurance. 

Our friends at Armed Forces Insurance are dedicated to helping your family in all situations, including providing helpful tips and information on insuring rental homes. Below is some information regarding insurance for rental homes, known as Landlord Insurance or Dwelling Fire Coverage?

What is Landlord/Dwelling Fire Coverage?

Landlord or Dwelling Fire coverage is the insurance policy that is needed if you are going to rent your home to others. While a Homeowner policy is designed to cover the home if you are living in it.

Landlord Insurance or Dwelling Fire Coverage is similar to a homeowner policy but is more flexible. This type of coverage allows you to protect your rental home against events or covered perils that may cause damage to your home. This could include but not limited to fire, explosion, wind, hail, lightening and many more. 

The Landlord or Dwelling Fire policy also covers any structures that are not connected to the home such as a shed or detached garage. Also, personal liability and medical payments to others are covered under this type of policy.

A unique feature of the Landlord policy is that it often covers Loss of Rents. Loss of Rents is coverage that provides you, the landlord, with continuous rental income if the rental property must be evacuated due to repair work that may occur after a claim such as a tornado or fire. This insures that even if your tenants have to move elsewhere, the landlord is guaranteed continued income while the home is being repaired. 

What is Not Covered by a Landlord or Dwelling Fire Insurance Policy?

Often, an important question in insurance that should be asked is, what is not covered by the insurance policy? These types of policies can come in many forms with varying degrees of coverage. Since they tend to be the most flexible type of coverage you can put on a home you should be aware of the different types of policies you could be quoted. 

DP-1 Policies

These are the most basic form of coverage for your rental home. The home is generally covered for the actual cash value (ACV) of the home and not replacement value. This is also a named perils policy meaning that the home will be covered for only what is listed in the policy terms which is extremely limited. There are only 10 perils covered on a DP-1 policy. The ONLY perils covered by a DP-1 policy are:

• Fire and smoke damage
• Lightning storm damage
• Damages from riots and vandalism
• Windstorm
• Hailstorms

This type of Landlord policy is the least popular option. 

DP-2 Policies

These polices offer slightly more comprehensive coverage than a DP-1 policy. Like the DP-1 policy, the DP-2 policy is also a named perils policy. However there are 18 perils that the DP-2 policy covers, not 10. Also, the DP-2 policy will cover your home for replacement value and NOT for actual cash value. This is extremely important for many reasons. For one, you could save a lot of money on repair costs with replacement cost vs. an ACV policy if a claim occurs. Another reason is that your mortgage company will often require you to have a replacement policy and will reject an ACV policy. 

The perils covered by a DP-2 policy typically are:

• Everything covered in a DP-1 policy
• Burglary damage
• Ice snow and sleet weight damage
• Falling objects
• Freezing
• Electrical damage
• Cracking, bulging or breaking of home systems
• Water or steam discharge
• Structural collapse

DP-3 Policies

A DP-3 policy is the most comprehensive policy you can get for your rental home. It is also the most common and preferred policy that you will find on the market. These types of landlord policies are similar to most homeowner policies as they are an “all risk” policy. What that means is that a peril or claim event has to be excluded on the policy for it not to be covered. If an event is not excluded, then the DP-3 policy will cover it. Also, replacement cost coverage and loss of rents is included in a DP-3 policy and it does not have to be added as an endorsement like the other DP policies. 

The perils that are excluded and not covered on a DP-3 policy are:

• Ordinance or law
• Earth movement (Earthquake)
• Power Failure
• Neglect
• War
• Nuclear Hazard
• Intentional Loss
• Government Action
• Mold

Cost and Other Considerations

Cost of a Landlord or Dwelling Fire policy can vary. Generally Dwelling Fire policies tend to be about 25% more expensive than a regular homeowner policy. This can be for many reasons but the main reason is because you, the homeowner, do not live there. The chances of a claim can increase depending on who is living in the home, especially if it is not the owner. 

You should also be aware that the insurance policy may stop covering the home or limit coverage if the home is vacant for more than 30 to 90 days. Each insurance company can have different rules. Be sure to ask your insurance company or check your policy to see what their rules are on home vacancy. 

For those of you renting a home or thinking of renting a home, make sure you look into getting the correct insurance. Thinking your current homeowner policy will be fine is a mistake many new landlords make. Whether you’re renting a single family home, a duplex, or multiple homes our friends at Armed Forces Insurance have a variety of insurance options to fit your situation. 

New to being a landlord? Give them a call at 800-313-1936 and they will be happy to answer your questions to ensure you understand all of the coverages available to you and will help make sure your assets are protected. 

These are just a few tips from Armed Forces Insurance regarding rental homes and the policies that cover them. For a more information on this and other topics, head over to Armed Forces Insurance – Resources and Tools page. 

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As a military family, you need insurance that matches your needs and protects what you value most. You deserve an insurance company that is committed to serving you. MilHousing Network is proud to partner with Armed Forces Insurance to bring military families’ reliable homeowner’s insurance options when buying a home. Contact them today at 800-313-1936 or visit www.afi.org/milhousing to learn how they can support your unique military lifestyle.

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