According to the latest available figures, the U.S. was home to 2,428 property/casualty insurers in 2020. Many of these companies, in turn, sell landlord insurance and homeowners insurance. Both are types of policies marketed toward property owners.
With that said, if you plan to buy real estate, you may either need landlord or homeowners insurance. Which of the two you need depends on what you’re going to do with the property.
To that end, we created this landlord insurance vs. homeowners insurance guide. Read on to learn what these policies are, who they’re for, their differences, and what they cover.
Landlord Insurance vs. Homeowners Insurance: A Quick Comparison
Landlord insurance is a policy that covers rental properties. The policyholder, which, in this case, is the landlord, doesn’t have to be a resident of the insured property.
In contrast, homeowners insurance is a policy that covers primary residences. Thus, the homeowner, as the policyholder, must live in the insured house.
What Is Landlord Insurance? A Detailed Breakdown
Landlord insurance is an insurance policy landlords can buy for their rental properties. Landlords purchase these policies to protect themselves and the properties they rent out.
Landlord insurance often consists of two parts: property protection and liability protection. Both types protect against financial losses.
Landlord Property Protection
Landlord property protection covers the physical property rented out. It helps pay for the repairs of the rental property if it gets damaged by covered losses or perils. Examples of covered losses are those caused by fire, lightning, hail, wind, and break-ins.
Property protection provides coverage for the dwelling, like the rental home or apartment. It also protects other structures, such as a detached garage or fence. It may also cover equipment owned by the landlord to maintain the rental property, such as a lawn mower.
Liability Protection
Liability protection helps protect landlords from liability claims relating to their rental properties. These claims may arise from accidents in a rented home that harm other people.
Let’s use a fall as an example, as it’s so common it causes over 8 million U.S. hospital emergency room visits yearly.
So, suppose a tenant got injured after falling down the stairs of a rental home. As a result, the tenant goes to court, claiming it was due to a faulty stair rail. The court then determines the claim to be accurate, so the judge holds the landlord liable.
In that case, the landlord would likely have to pay the tenant’s hospital bills and legal costs. That will be out-of-pocket if the rental property owner doesn’t have liability protection. However, if the landlord does, it will help pay for those expenses up to the policy’s limits.
What About Homeowners Insurance?
Homeowners insurance protects an owner-occupied dwelling and detached structures against losses or damage. It also covers the contents of the property, such as personal belongings. Moreover, it provides liability protection.
According to the folks at Lopriore.com, mortgage lenders require homeowners insurance. Thus, this policy is mandatory if you finance a home purchase with a mortgage.
Conversely, homeowners insurance is optional if you buy a house without a mortgage. However, it’s still best to consider getting covered to protect yourself from losses.
Of the many types of homeowners insurance in the U.S., the most popular is the HO-3. The most recent figures place its market share at 77.68% of all owner-occupied exposures.
One reason behind HO-3’s popularity is that it offers the broadest coverage. For starters, it covers the dwelling and other structures on an open-peril basis. That means it covers nearly any loss to those components, as long as it’s not due to a specified exclusion.
With an HO-3 policy, you can get the following essential coverages:
Coverage for Home Structures
This part of an HO-3 insurance policy helps pay to fix or rebuild a home damaged by covered perils. These include fires, lightning, hail, snow, and vandalism, to name a few. Likewise, it covers detached structures, such as a garage, gazebo, or tool shed.
Personal Belongings Coverage
An HO-3 homeowners insurance policy covers personal belongings like clothes, furniture, and gadgets. It helps pay for the repairs or replacements of these items if they get damaged by a named peril, such as a fire or theft.
The coverage also extends to expensive valuables, such as jewelry or silverware. However, there are often dollar limits applied to these items if they get stolen.
If you don’t want those limits, you can buy a floater, a specialized type of insurance. It covers expensive items up to their appraised value. Moreover, it covers losses that standard homeowners insurance doesn’t.
Liability Protection
A homeowner may face a bodily injury lawsuit from someone who gets injured on their property. Likewise, a homeowner may get sued for accidentally ruining a neighbor’s property.
The good news is that homeowners insurance protects insured homeowners from such lawsuits. That’s because it provides liability protection for bodily injury and property damage.
Those coverages also extend to the policyholder’s family living in the insured house. It even covers damages caused by the policyholder’s pets.
Additional Living Expenses (ALE)
ALE helps cover the extra costs of living away from home if it becomes damaged or unlivable due to a covered peril. For example, it pays for hotel bills and spending on food away from home as the house gets fixed or rebuilt.
However, note that ALE has a monetary threshold and, in some cases, a time limitation. Once you’ve reached those limits, you’ll pay for your costs out of pocket.
That’s How Landlord Insurance Differs From Homeowners Insurance
And there you have it: your landlord insurance vs. homeowners insurance guide. Now you know landlord insurance is specifically for rental property owners. You also learned that homeowners insurance is for those who own and live in an insured home.
So unless you plan to rent out a home you own, you may need homeowners insurance.
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