The primary difference between homeowners insurance and rental property insurance is the status of the insured. As the name implies, homeowners insurance is intended for those who own their home and use it as their primary residence. Rental property insurance is also known as landlord's insurance and, as the name suggests, is intended for property owners renting out one or more dwellings to tenants. The coverage between the two is similar, with a few significant differences reflecting their individual purposes.
Differences in Coverage
A basic homeowners policy is almost always required to obtain a mortgage, and such policies are usually sufficient in coverage for a typical single-family household. Landlords may use a homeowners policy for rental properties, but they miss out on key protections offered by rental property insurance. Homeowners insurance does not, for example, provide coverage for a loss of rental income due to property damage. A landlord relying on homeowners insurance for rented properties may save money initially but leave himself open to huge losses in case of incidents beyond the scope of a homeowner’s policy.
Loss of Rental Income
A homeowners policy has no need to account for a loss of rental income, but rental property policies do. Landlords lose income when tenants must move out of a rented property due to damage or needed renovation. Proper coverage will protect the landlord, as insurance companies often will provide fair rental income coverage in rental property insurance; fair rental income will cover the loss of rent to the landlord until rental dwellings are habitable again.
Both types of policies cover damage caused by common perils, such as fire, wind, hail, theft or vandalism, to any permanent structures on the protected property. Rental property insurance will also usually extend to cover items used in connection with rental dwellings, such as laundry facility furnishings. Homeowners insurance has protection that extends to the owner's personal belongings inside the home, including, often, coverage for stolen jewelry. In case a dwelling covered by homeowners insurance is rendered uninhabitable due to a peril named in the policy, the insurance usually will cover the expenses involved in temporarily living elsewhere while repairs or renovations are done. Additionally, both types of policies typically include liability insurance in case of a guest's injury or accident on the property. This protects the homeowner or the landlord by providing legal defense if needed and by covering reasonable medical expenses for the injured.
There are limitations to the protection offered by either homeowners insurance or rental property insurance. Neither policy will normally cover flood, earthquake or water damage caused by a sewer backup, leaving the insured effectively uninsured should these incidents occur. There are limitations on coverage amounts, and should damages exceed them, the insured takes the loss; for example, coverage for stolen jewelry seldom exceeds $2,000 without purchasing a higher policy limit. In the case of rental property insurance, no coverage is provided for a tenant's personal property or for basic maintenance and repairs.
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