I received a call from a mortgage loan officer in Dallas a few weeks ago. She was working with a couple who was buying a duplex but had not yet obtained insurance. The loan officer wondered if we could help the couple as the purchase was scheduled to close in a couple of days.
Insuring a duplex can be slightly different than writing a home insurance policy for a single family home. There are two homes under one roof, each with their own kitchen, bath rooms, living areas, and bed rooms. How a duplex is insured depends on what the buyer’s intentions are for the property.
In order to know how to insure the duplex, there are three things I need to know:
- Are they buying one side or both sides?
- If they are only buying one side, will it be their primary home or a rental property?
- If they are buying both sides will they live in one and rent out the other, of will both sides become rental property?
One Side: If the buyer is purchasing only one side and it will be their primary home, then a home insurance policy is written for their half of the duplex. The replacement cost (see http://188.8.131.52/~wiseinsu/home-insurance-replacement-cost-actual-cash-value/) is determined based only on the square footage and finish out of their half. Coverage for contents, detached structures, medical coverage, and personal liability are covered in the same way a single family home insurance policy is written.
If the half is being purchased as rental property, then a landlord policy is written. Landlord policies cover only the premises and may include personal liability for the owner, but there is no coverage for the tenant’s contents. We’ll dig deeper into that next week.
Both Sides: If the buyer is purchasing both sides and one side will be their primary home, then most insurance companies will write a single home policy for both sides. In this case, the replacement cost is determined using the total square footage of both halves and include in the computation both kitchens, the total number of bath rooms, bed rooms and living areas (see http://184.108.40.206/~wiseinsu/home-insurance-replacement-cost-factors/). There may be a few insurance companies that write a home insurance policy on the owner occupied half and a landlord policy on the tenant occupied side, but I’ve not seen anyone take this approach in a long time.
In the case where a single home insurance policy is written, the contents coverage applies only to the owner occupied side even if the property coverage applies to both halves. The tenant still needs to purchase a renter’s insurance policy in order to have coverage for their personal property.
If the owner is purchasing both sides and they will be occupied by tenants, then most insurance companies will write a landlord policy on the total structure. I have seen a couple of carriers require a separate landlord policy be written for each side as they view each side as a separate rental property.
In the case of the couple the loan officer called about, they were purchasing both sides of the duplex and would live in one side while renting out the other. The quote I prepared for them provided coverage over the entire structure, their personal property, as well as personal liability to protect themselves as homeowners and landlords. They were pleased with the quote and the level of coverage it provided so we wrote the policy for them and they closed two days later.
Are you thinking about buying a duplex or already own one? Share your experience, comments, and questions with us in the comments section of our blog or on our Facebook and Google + pages. I’d love to hear from you!