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Landlord Insurance When Renting to Your Family

January 15, 2021

Yes. You'll need landlord insurance anytime you own a property, title it in in your name, live elsewhere, and collect rent.

Whether it's a second home, vacation home, or investment property, if you charge for someone to live in it, including family, then you should buy landlord insurance.


What if I live in the rental property periodically?

Even if you live there for nearly half the year, you can only have one primary residence for insurance and tax purposes. For example, you may visit the grandkids or help aging parents. You would still need a landlord insurance policy and not a homeowners insurance policy because the rental is not your primary residence.


What is landlord insurance?

Landlord insurance is an insurance policy that covers property owners when there is damage to a property that they rent. Insurance companies sell three types of landlord insurance policies (or dwelling fire policies). There is dwelling policy 1 (DP-1) for very limited coverage, dwelling policy 2 (DP-2) for moderate coverage, and dwelling policy 3 (DP-3) for comprehensive coverage.

DP-3 policies grant replacement cost instead of actual cash value for claims and repairs, meaning you avoid taking a hit for depreciation, and you'll get the money you need to buy something new and comparable. That's one reason they're the standard landlord policy. DP-3 policies are like the standard homeowners policies (HO-3) with some key differences and have the following coverages:

  • Building: Covers the structure itself for common perils such as fire, lightning, wind, and hail
  • Liability Protection: Covers bodily injury to someone else, damage to their property, and legal fees from a lawsuit.
  • Loss of Rental Income: Replaces loss rent for a set period if tenants are forced out
  • Additional Coverages (Unlike homeowners insurance where these are included)
  • Other Structures: Unattached structures such as garages or sheds
  • Personal Property/Contents: You can pay more to protect your personal items. The tenants would need a separate renters policy for their personal belongings.
  • Medical Payments: Covers the medical expenses of guests regardless of fault. You may be able to add coverage for your rentals through your primary homeowners (HO-3) policy.
  • Notable Exclusions: Earthquake, power failure, water damage, and mold (some companies cover the last two). Vandalism is excluded unless you add it.


Do I need landlord insurance and home insurance?

Not for the same home. Insurance companies expect the owner to live in the house for a homeowners policy. So, you'd have a homeowners policy for your primary and landlord insurance for your rental family home.

Landlord insurance gives building and liability coverage. The most significant difference between your landlord policy and homeowners policy is that your homeowners policy covers your personal property.


Does My Homeowners Insurance Cover the Family I Rent to?

No, your homeowners, vacation, and second home insurance policies will not cover the family you rent to. There are two exceptions.

First, some insurance companies may allow you to add an endorsement to your homeowners policy for a second home or vacation home to cover a short-term rental (think the length you'd rent an Airbnb).  Anything greater than a month would be a long-term rental and require you to buy landlord insurance.

Second, if you have insurance on a vacation home or a second home, and you've put your family member on the title or deed. You may insure the house on a homeowners policy with the insurance carrier's underwriting approval.

A common problem arises when a parent moves to a second home to rent the old house to a child. Since the owner no longer lives in the home, you need landlord insurance for the property, or you risk the insurance company denying payment in case of a claim.


What if I'm letting my family stay for free or reduced rent?

Parent and grandparent landlords ask this question often. But even if your family pays reduced rent or no rent at all. You must purchase landlord insurance.

The policy doesn't factor in how much the tenants dish out for rent. Your family would still be your tenants, even if their monthly cost is nothing more than an "I love you."

As noted above, you may qualify for the cheaper priced homeowners insurance instead of landlord insurance if you put your family member on the deed. Contact your insurance agent and see if they'll allow it before you title the property with your family member's name.


Does landlord insurance cover personal property?

No, the standard dwelling policy (DP-3) does not cover personal property. But you may be able to add contents insurance coverage (or personal property insurance) to protect your personal property such as appliances, furniture, or landscape equipment like a lawnmower.

The key point is your policy won't cover your tenant's stuff even if they're family.


Should my family members get a renters insurance policy?

Yes, it's a smart idea, and many landlords require it. A renters policy also called an (HO-4), gives the tenant personal property coverage.

And the renters policy may prevent disputes between landlords and tenants over personal property claims. Although this is less likely with family, it still makes things clear. The renters policy also gives your renting family liability insurance and protects them if their guest sustains an injury and names them in a lawsuit.

Some may think they can skip the renters policy because they lease to family. Here's an example to illustrate what could happen:

Jim and Bridgette lived in their suburban home for 23 years until their son married and moved his bride in. The parents moved out to a smaller condo in the city next to Jim's job. They thought their old homeowners policy would cover their son and his wife.

After a fire, the insurance provider considered the damage to the structure a covered loss but denied the claim on everything the newlyweds owned, including all their brand-new furniture, wardrobes, and expensive wedding gifts.

A renters policy would have saved the day for the newlyweds, and according to Insurance Information Institute (III), the average cost of renters insurance is just $15 per month.

How much does landlord insurance cost?

You can expect the cost of landlord insurance to run about 25 percent more than standard homeowners insurance.  It costs more because renters have a statistically higher probability of causing property damage that requires a claim than homeowners, and insurers charge more to deal with the increased risk.  At the time of the claim, landlords can expect to pay a deductible between $1,000 and $2,500, depending on where they set it. The average homeowner paid $1,192 in premium, and the average landlord paid $1,478, as of a few years back.

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