Published in the Capital District Association of Rental Property Owners (CDARPO) newsletter – April, 2023

By Don Ferlazzo, Agent/Agency Owner

If you own your home, you need homeowners insurance to protect it. If you rent your home from somebody else, you need renters insurance to protect your stuff. But what if you own a property that you rent to others? Whether it’s an owner-occupied multi-family home, a 1-4 family residence, or an apartment building, if you rent it to others you need special protection that’s available only with certain types of policies.

With all the options available, it can be confusing for landlords who want to protect their investment property while watching their bottom line, but which type of property insurance is appropriate for you? In general, these are your options:

Owner Occupied Multi-Family Homes

If you are renting a multi-family house in which you (the owner) are also residing, you can usually cover it with a standard homeowners policy. Not only will it protect the house itself against covered perils (forms of loss such as fire or wind), it will also protect your belongings, your family liability (if you are ever sued) and loss of use (should you and/or your tenants become displaced due to a covered claim).

1-4 Family Homes

If you are renting out a property where you do NOT reside yourself, you will need a completely different type of policy to protect it properly. If it’s a 1-4 family house, the typical policy type needed is called a Dwelling Fire policy (a.k.a. “Landlord Policy”). This policy insures the structure and property you own kept on premises that is used to service the property (i.e. lawnmower, snowblower). It also includes liability insurance in case somebody gets hurt and sues you, and it covers you for lost rental income (since your tenants likely won’t keep paying you if they can no longer live there due to a covered loss like a fire).

Apartment Buildings (residential or mixed use)

If you own a residential property with more than 4 units, or you own something that is mixed-use (meaning it has both residential and commercial tenants) then you should be insuring it with a Business Owner’s Policy (a.k.a. “BOP”). In addition to the structure, your belongings, your liability and loss of rent, a BOP can also provide coverages like computer fraud, loss of electronic data, employee dishonesty, valuable papers/records, lock replacement, outdoor signage and more.

In all cases, it is important to remember that your homeowners, dwelling fire or business owners policy only protects you as the property owner. It does not provide your tenants with coverage for their personal belongings, liability or their loss of use. Many insurance companies recommend or require that landlords mandate their tenants have renters insurance for a variety of reasons, and as a landlord it is in your best interest to do so. More on this in a future article.

Something else to note, I have heard of instances where a potential client has been insuring a single family house they rent to others with a standard homeowners policy, but this is not recommended. First, if there is a claim and your insurance company discovers somebody other than you has been living there, they could potentially deny the claim. Next, even if the claim is covered, the homeowners policy will not pay you for the rental income lost when your tenant became displaced. Finally, your insurance company will likely not offer to renew your policy when its current term expires, leaving you scrambling for new insurance during an already challenging time in your life.

It should also be noted there are many additional differences in both coverage options and limits with each type of policy. These can vary from company to company, as well. Every risk is different so we recommend you speak with an insurance agent to discuss your situation before purchasing a policy. At Foursurance, we’ll get to know you and help you understand your options while being respectful of your time, then we’ll present you with our recommendations and best pricing. If you would like us to look at your insurance needs, feel free to reach out to me directly at 518-978-4044 (call or text) or don@foursurance.com.