What Is Landlord Insurance?

 

Landlord insurance is homeowner's insurance designed to protect homes not occupied by the owner. If you own a house, apartment or condo that's used as a tenant rental, landlord insurance is what you need to protect yourself from the dwelling being the cause of your suffering financial loss from a number of risks. These risks, known a “perils” in the insurance industry, are similar to those contained in a standard homeowner's insurance policy, although the landlord policy is typically smaller in the depth and breadth of its protection.

Differences Between Homeowner's Insurance and Landlord Insurance

While it's possible to buy landlord insurance for your owner-occupied home, it wouldn't be wise since the coverage is lesser in scope and yet likely more expensive in cost. On the other hand, typical homeowner's coverage being carried on a rental property is a definite no-no, since any loss occurring on the property won't be covered and any claim will be denied.

There are three types of landlord insurance policies: DP-1, DP-2 and DP-3. Each contains dwelling protection and liability protection. They may also contain loss of use protection. Additional optional coverage is also available. Here's a brief rundown:

• DP-1 – This is the most basic and lowest-cost landlord insurance. It's a “named perils” policy, meaning that only perils specifically listed (or named) in the policy are covered. Most DP-1 policies are actual cash value (ACV) policies, which means any claims payments for covered property losses may include a calculated amount subtracted for depreciation.
• DP-2 – Also known as Dwelling Fire Form 2, DP-2 is average protection for a rental home and considered adequate for most rental properties. It is also a “named perils” policy, typically covering 18 listed perils similar to those found in the popular homeowner's HO3 policy. Unlike the DP-1 policy, the DP-2 is a Replacement Cost Policy as opposed to Actual Cash Value coverage. This means that depreciation is not factored in when a claims payment is made, thereby providing much more comprehensive coverage. Most DP-2 policies include Loss of Rents coverage, which pays you rent if your tenants are forced to move out while repairs are made to a property damaged by one of the policy's covered perils.
• DP-3 – The best rental property insurance, DP-3 is “All Risk,” meaning all perils except those specifically excluded are covered. This is Replacement Cost insurance and also includes Loss of Rents coverage.