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More people are becoming landlords, many by choice and some by necessity, but they don’t always know what it takes to insure a rental property.
The insurance equation changes quite a bit once a home is rented out. Renters carry a different set of risks, so some insurance companies choose not to insure rental properties altogether.
Here are three things to know about rental property insurance:
1. The average homeowners’ insurance policy doesn’t cover the property if the homeowner isn’t living there. Once you go down the rental road you will need a landlord or rental dwelling policy.
2. Pay close attention to the valuation coverage in your new rental dwelling policy. There are two traditional methods: actual cash value and replacement cost.
The insurance industry has traditionally defined actual cash value as the cost to replace a property of like kind and quality, less depreciation. Whereas, replacement cost covers the price to replace the property with comparable material and quality used for the same purpose.
3. Another consideration, does the dwelling policy cover the loss of rental income?
For example, if the worst happens and there’s a fire, your rental property may not be usable for months. If the dwelling policy covers loss of rent, you can get reimbursed for that lost rental income.
Another note, no matter what type of policy you buy, it will not cover the possessions of your renter, so experts recommend that you require all tenants to carry renters insurance.
If you are thinking about becoming a landlord, talk to a trusted insurance advisor to make sure you have the proper coverage.