I have the honor of providing coverage for a couple who recently moved to Dallas from Fort Worth. Their decision was driven so they would be closer to the wife’s clients and his office. Instead of selling their home though, they decided to lease it to another family. Before doing that, he called me to discuss what they needed to do insurance wise on their Fort Worth home and their Dallas home, one of the loft apartments near down town.
Our discussion covered two broad points for the two of them to consider.
- For their new home in Dallas, they’d need a renter’s policy.
- For their home in Fort Worth, we’d cancel the home owner’s policy and write a rental property policy.
Renter’s insurance is designed to protect one’s belongings or personal property including, furniture, clothing, electronics, dishes, kitchen ware, etc. To help us determine how much coverage he and his wife would need for their personal property:
- We reviewed how much contents coverage the home policy provided.
- We then compared that to what the two of them own and the estimated value of their personal property.
Once that was completed, we wrote the renter’s policy to go into effect on the day their lease started for the new home and provided proof of renter’s insurance to present to the property management company.
We then turned our discussion to the Fort Worth home.
- Even though I’d written a home owner’s policy on the Fort Worth home, we’d need to cancel it.
- It would then be replaced with a rental property or dwelling fire policy.
While their renter’s insurance would cover their personal property, a dwelling fire policy is only concerned with protecting the home in Fort Worth and any contents they’d left behind such as a refrigerator, the washing machine, and the dryer. Their tenants would need to obtain their own renter’s insurance if they wanted to cover their personal property.
My clients then asked a great question; why not just leave the home policy in place as it was? Many people aren’t aware of the fact they do need to replace the home policy with a dwelling fire policy. The reason is all insurance companies view a primary home much differently than a rental property in terms of risk.
- A rental property inherently has more risk than a person’s own home.
- Usually owners take better care of their home than a renter will.
He understood and I outlined a dwelling fire policy for the home they were vacating.
A colleague of mine knew of an instance where the home owner found this out the hard way. He’d rented his home out to another family and moved into an apartment to downsize but neglected to discuss it with his agent. In this man’s mind, the home was protected by the home insurance policy he had in place.
It turns out this man’s home was struck by hail from one of the two storms that passed through the Dallas / Fort Worth area last year. Upon learning the home had been struck by hail, he turned in a claim. His insurance company declined the claim on the basis that the home was not properly insured, it should have been insured with a dwelling fire policy.
Some people will mistakenly think this was an example of an insurance company wanting to get out of paying the claim. The fact is, the company would have gladly paid for the claim if the home owner’s policy had been replaced with a rental property policy. Had he only communicated what he was doing with his agent, he could have avoided this unfortunate situation altogether.
I advise all of my clients to talk with me when they make a variety of changes including:
- Renting out their home to another family
- If they undertake an extensive home remodel or addition
- If they add a pool
- Any time they replace a car with a new one
- Any major life changes such as the addition of a child or a family member moving in with them
These instances, and others, are ones that may impact what they need to do with their insurance. As the insurance advisor for my clients, we’re able to discuss these changes and determine if any changes are needed to their policies and how to best protect them.
In my client’s case, we were able to properly insure them and their homes in the right way. It cost them a little more, but the three of us are able to rest better knowing that they are properly covered.
Do you have a question, thought or comment? Share them with me in the comments section of our blog or on our Facebook page. I’d love to hear from you!