I received a call last month from an investment property owner. He’d bought a duplex in Houston earlier this year as a rental property and had a question about the insurance he’d originally purchased from another agent. Even though he had only bought one side of the duplex, he’d been told most carriers required both sides be covered in order to write a duplex insurance policy. He wanted to know if that was correct.
Honestly, I can’t imagine any agent telling him that. It’s inaccurate to be sure. Most insurance companies will only write a home, rental property, car or business insurance policy for someone who has an insurable interest in the property. Insurable interest means they have an ownership stake in the property. According to Texas law, no one can have an insurable interest, and therefore an insurance policy, on something they don’t own. Otherwise, I could write a policy in my name on someone else’s million dollar mansion and attempt to collect for damages caused by a fire.
If there’s no insurable interest, then you cannot have a policy written on it. In this case, since he didn’t own the other side, he only needed a duplex insurance policy on the half he owned. Let’s delve into this a little deeper into duplex insurance by looking at one side versus both sides and then contrast that with home versus rental property.
One Side: If you own or are buying one side of a duplex, then as I’ve already mentioned, you only need an insurance policy for the half you own. The replacement cost calculation should only be done for your half of the duplex (see https://wiseinsurancegroup.com/home-insurance-replacement-cost-factors/). The other half should not have any bearing on your policy coverage or replacement cost.
Both Sides: If you’re buying or own both sides of a duplex, you’ll need a policy or policies to cover the entire duplex. What kind of policy is needed is determined by who lives in which half. The duplex insurance could be written as either a primary home or rental property policy or both under certain circumstances.
Owner Occupied: If you as the owner will occupy the half you’re buying or own, then a homeowner’s policy is needed. This will cover your half of the structure and your personal property or contents (furniture, appliances, electronics, clothing, kitchenware, etc.).
Rental Property: If, your half or both sides will be rental property, then you’ll need a rental property or landlord policy which covers the side(s) you own, with maybe a little bit of coverage for appliances, but no other contents or personal property. Your tenant will need to purchase a renter’s insurance policy to cover their personal property.
Mixed Use: The only time more than one policy may be needed is when someone owns both sides, they live in one half, and a tenant lives in the other half. If the tenant is an immediate family member (parents, siblings, adult children), many insurance companies will allow you to have a single home insurance policy that covers both sides.
On the other hand, many insurance companies will require a home insurance policy on your half and a rental property policy on the half that’s occupied by someone else whether it’s an immediate family member or not. In these cases, each policy is responsible for only the side that it applies too.
Duplex insurance isn’t hard if you are working with someone who knows what they’re doing and what questions to ask. I now have a new client who owns one half of a duplex in Houston because I asked the right questions. It also was nice to provide him with a better policy that has a lower deductible, and a savings of over $300 a year too!
What questions do you have? Share them with me, along with your comments and experiences, on my Facebook, Google +, and LinkedIn pages. I’d love to hear from you!