Why Is My Landlord Policy More Than My Homeowners Insurance?
If you have a client who has just started renting their home and they’ve paid that first premium on their landlord’s insurance or rental dwelling policy, then they may have noticed that it’s a bit higher than what was typically paid when it was just a homeowner’s policy. The Insurance Information Institute (I.I.I.) estimates that on average, premiums for such policies are around 25 percent higher, in fact. The simple reason I.I.I. gives for this is that your customer, as a landlord, needs more protection than a homeowner. But why is that? What are some of the factors that landlords have to deal with that homeowners do not?
For starters, there is the lack of control.
When a person decides to start renting out their home, they cannot always be certain of their new tenant’s habits. Many renters simply don’t respect the property the way they would if they owned it, and that can add up to significant damages over a 6- or 12-month lease. With rental income usually derived from a number of tenants over time instead of one tenant that the landlord can set their watch to, one who chooses to rent out a property will come across a wide assortment of personalities. Each new face only increases the amount of protection the landlord will need. That’s at least what he should assume when signing up for a policy.
Secondly, the landlord could be sued.
This could be true for a homeowner as well, though it’s far less likely because homeowners usually have better control over the people visiting their home (I.e. Friends and family). These are hardly the types of people who will consider suing with great frequency, even if they are injured on your property. People who rent their home, on the other hand, do business with all personality types, most of them strangers. The ensuing lack of familiarity is more likely to end in litigation whenever there is a serious dispute. And if your client rents property over a long period of time, it’s bound to happen sooner or later. If a landlord were to be found guilty of some form of negligence that resulted in loss of property and/or personal injury, they could be subject to replacing those possessions for the tenant and maybe even providing healthcare. Very expensive risks, to say the least.
Thirdly, tenant use of appliances is less predictable and more likely to result in faulty equipment than if the landlord exercised direct care over the items.
Some tenants may not replace a toilet valve resulting in huge water costs and possible overflowing. Others might leave a fire hazard unattended in the kitchen resulting in damage to the appliance and the surrounding area. As a result, landlords have to replace appliances with greater regularity than homeowners. Maintenance is more frequent and more expensive, and that is reflected in higher premiums.
Renting out a home is a wise decision, because it builds a steady stream of income and is often the difference between a house turning a profit or selling at a loss. Still, one does have to be mindful of the added costs associated with homeownership and be vigilant when it comes to repairs and maintenance. Landlord’s insurance provides support for the owner while filling in coverage gaps. So the next time a client asks why it’s more expensive, share the explanations above.