Round Rock Property Management Blog

Before renting out your property, you should purchase a landlord insurance policy. Unlike a homeowner's insurance policy, a landlord insurance policy will protect you from common problems that occur when you rent property.

Types of Landlord Insurance Policies

While the terms used to describe insurance policies vary by company, most agencies offer three types of landlord policies. The DP-1 policy is the least expensive policy and offers coverage for only named risks. These risks can include:

• Fire and smoke.
• Hail, windstorms, and lightning.
• Riots.
• Damage caused by aircraft or other vehicles.
• Explosions.

However, there is no guarantee that a DP-1 policy will cover damage from any of these problems. Landlords must check their policy before signing to see what risks their policy lists.

A DP-2 policy offers coverage for more types of risks. Like DP-1 policies, covered risks will be explicitly named in the policy. In addition to the risks covered in the typical DP-1 policy, a DP-2 policy may cover risks like:

• Electrical damage and frozen pipes.
• Building collapse.
• Damage caused by the weight of snow and ice.
• Falling objects.
• Flooding caused by a stream or river overflow.

DP-3 policies are often called “open peril policies.” This type of policy covers most risks and is the most expensive. A DP-3 policy will list any specific perils that are excluded from coverage. If you are concerned that a DP-3 policy does not offer coverage for a specific peril, you can ask that a rider be added to your policy to provide additional coverage.

Actual Cash Value Versus Replacement Cost

When purchasing insurance, landlords should look for policies that offer replacement cost coverage versus actual cash value coverage. For most DP-1 and some DP-2 policies, the insurance agency will only pay you what they believe your property was worth when the damage occurred. For example, if hail damages your rental's seven-year-old roof, the insurance company will pay for the worth of the existing roof. Then you would be responsible for paying the additional cost to replace the roof with a brand new one, which will certainly be more expensive than the "value" of the 7-year-old roof.

Article Content Originally Posted by: Landlord Station. (Nov.2014). “What Makes a Good Landlord Insurance Policy?” Landlord Station. Retrieved 10, Oct. 2016 from: http://www.landlordstation.com/blog/what-makes-a-good-landlord-insurance-policy/

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