Is Home Insurance for a Rental Property More Than for Primary Residence?
Property insurance for a rental home typically costs about 20 percent more than insurance on your primary residence. Insurance companies use risk-based pricing for policies, and as rental properties are often unoccupied for periods of time, insurers feel problems that eventually lead to insurance payouts are more likely to go unnoticed in a vacant home than in a permanently occupied home.
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Hazards
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A small leak in your home's plumbing could lead to serious damage due to rot and mold, while faulty electrical wiring or a gas leak could lead to a fire. You are likely to notice these kind of problems in your primary home, but if you have a leak of some kind in your rental home it could go undetected for weeks. Additionally, vacant homes tend to attract vandals much more than homes that are permanently occupied. Damage due to termites, rats or other animals could go unnoticed longer in an empty rental than in a primary home. Anything that increases the chance of an insurance payout causes your insurance premiums to rise.
Property Types
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Investors often buy rental condominiums, but insurance policies for these properties are often more expensive than on regular homes. Aside from the cost of your own unit's insurance, you also have to pay a share of the cost of insuring the entire building that contains your unit. Other investors buy rental homes situated by the coast, where insurance costs are higher due to the threat of hurricanes and flood damage. If you invest in low-income inner city rental homes, insurance costs are often adjusted upwards due to higher crime rates. Therefore, your insurance costs for a rental are impacted by the type of property you buy.
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Liability Insurance
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When you rent a property out you should always buy liability insurance to protect yourself from lawsuits involving your tenants. If one of your tenants gets injured on your property, you are responsible for his medical costs, and in many states injured tenants can sue you for damages beyond just the cost of medical treatment. If you do not buy liability insurance, you must settle such claims out of your own pocket. Therefore, investors typically buy liability insurance even though it does increase the overall cost of insuring a rental home.
Considerations
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To reduce the overall cost of insuring rental property, many landlords require tenants to purchase renters insurance that provides the renters with coverage in the event of theft or damage to personal property. You can usually get a discount on your overall insurance costs if you buy insurance for both your primary home and rental home from the same insurer. Additionally, if you add fire alarms, smoke detectors, burglar alarms and other safety devices to your rental home, you can lower the cost of your insurance.
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