Last week we introduced the three types of rental property insurance policies; fire, Dwelling Policy Form 1, and Dwelling Policy Form 3 (see http://220.127.116.11/~wiseinsu/3-types-rental-property-insurance-policies/). I’d like to build on that in this week’s post with a look at the coverage that should be on a Form 3 Dwelling Policy in order to provide the best coverage for the property owner.
Coverage A, Dwelling: This is the amount the rental property is insured for. There should be enough coverage to replace the home in the event of a total loss, which means it should cover demolition, debris removal, and building a new home in its place. Replacement cost has nothing to do with the sale or purchase value, nor does it have anything to do with its taxable value.
Coverage B, Other Structures: In most cases, Texas Dwelling Policies (TDP), will have 10% of the home’s insured value to cover other structures including detached garages, fences, sheds, swimming pool, etc. This amount can be increased, if needed, to cover a garage apartment or some other detached structure that exceeds the 10% amount, however, it can’t be lowered.
Coverage C, Personal Property: No rental property insurance policy covers a tenant’s personal property; that’s what a renter’s insurance policy is for (see http://18.104.22.168/~wiseinsu/renters-insurance-buyers-guide/). A landlord, however, may provide a refrigerator or washer and dryer in the rental property. Some insurance companies view the refrigerator, washer and dryer as part of the dwelling because they are connected to the home via an electrical cord or water supply line, drain, etc. In these cases, the insurance company rolls the value of these appliances in with the dwelling coverage.
Other insurance companies view these items as landlord contents. With these companies, the appliances are covered under the contents coverage of the rental property policy. The amount of coverage should be enough to replace these items if they were lost due to a fire, tornado, or even theft by the tenant.
Coverage D, Loss of Rent: A small loss, such as a water leak, hail damage, or even a small fire, may be repairable without the tenant moving out. In the case of larger claim, such as fire, it make take weeks or months before the damage is repaired and the property livable again. When this happens, loss of rent coverage, pays for any lost rental income until the home becomes habitable. This coverage can be a financial lifesaver for the landlord that’s still paying the mortgage while the home is unoccupied. I recommend enough coverage to cover an entire year of lost rental income.
Coverage H, Premises Liability: If someone comes onto the property, invited or not, and they are hurt, the landlord can be sued for negligence. The tenant can also sue the landlord if they are hurt or experience property damage due to the landlord’s negligence. Premises liability is designed to help protect the landlord financially if they are sued for negligence. Coverage amounts are usually $100,000, $300,000, or $500,000, and I recommend anyone owning rental property have at least $500,000
Medical Payments: Medical payments can be used to help defray the medical bills of a tenant or guest if someone is injured on the property. The amount of coverage is usually in the $1,000 to $5,000 range. This will be very helpful if the injury is minor, however, personal liability will probably be used if the injury is substantial.
Coverage G: Loss Assessment: This coverage can be very helpful when the rental property is a condo or home where a home owner’s association is present. This coverage helps pay for claims where the association assesses each of the property owners to replace a roof due to hail damage, etc.
Do you have a question about rental property insurance or any of these coverage items? Share your questions, comments, or experiences with us in the comments section of our blog or on our Google + and Facebook pages. I’d love to hear from you!