Homeowners insurance vs landlord insurance

When comparing homeowners insurance vs. landlord insurance, it’s important to know their key differences. 

Therefore, choosing the right policy is key to protecting your investment. If you own property in New Jersey, our real estate law firm can help you make informed decisions when selecting the ideal insurance.

Differences between homeowner’s insurance vs. landlord’s insurance

The main difference is that homeowners insurance protects your home and belongings in the event of certain disasters and supports you in liability claims. 

On the other hand, landlord insurance is designed to protect your investment in rented properties by covering tenant-related damages, certain disasters, and claims. Here are some other differences:

Occasional or short-term rental

If you plan to rent out your home occasionally, homeowners insurance may offer some coverage for specific risks, such as fire damage or theft, as long as it is a one-time, temporary rental. 

However, many standard homeowners policies do not cover these occasional rentals. 

For this reason, it is recommended that you consult with an insurance agent to assess whether you require a specific clause covering short-term rentals.

Long-term rental and frequent leases

When renting is more frequent or long-term, you will likely need landlord insurance. 

This type of insurance is ideal for regularly rented properties, as it covers risks and damages related to:

• The tenant, 
• The ownership structure, and 
• Certain personal property, such as furniture that you provide with the rental. 

Landlord insurance also protects your investment against liability events. 

For example, if a tenant or visitor suffers an injury on the rental property and you are held legally responsible, insurance could cover associated medical or legal costs.

Vacation home rentals and investment properties

Homeowners insurance is intended for owner-occupied primary residences. 

If you have a vacation home or investment property that is vacant most of the time or is rented out regularly, you will need landlord insurance or a vacant property policy.

Without this policy, your vacation home or investment property could be left unprotected against unforeseen events.

Homeowners Insurance vs. Landlord Insurance Costs

Landlord insurance typically costs more than homeowners insurance, due to the additional risks of renting. 

This coverage offers protections against loss of rent, which helps you maintain your income if the property becomes temporarily uninhabitable, such as during repairs covered by the policy. 

Because renting properties involves additional risks, the cost of landlord insurance is often different than homeowner insurance. 

What does homeowners insurance cover vs. landlord insurance?

Both insurances offer protection, but each is designed to cover different scenarios and needs depending on whether it is your primary residence or a rental property:

Homeowners Insurance

Homeowners insurance is designed to protect your home and personal belongings at your primary residence. It therefore provides coverage for:

• Personal Property: Covers your belongings inside the home, such as furniture, clothing, and appliances.
• Liability: Protects you if you or a resident family member causes damage or injury, inside or outside the home.

Landlord Insurance

This insurance is designed for those who rent out their property, providing specific coverage tailored to the needs of a rented property. That said, it offers protection for:

• Property in the leased premises: This covers items that remain in the rented property, such as furniture included in the rental or maintenance equipment. For example, a lawnmower.
• Landlord Liability: This provides coverage if a tenant or visitor has an accident on the property and you are found liable. If necessary, it will cover legal costs and compensation payments.

Are you thinking about becoming a landlord in our state? Then we invite you to read our blog on how to become a landlord in New Jersey.

Levels of coverage for homeowners insurance vs. landlord insurance

Now that we know what homeowners insurance vs. landlord insurance covers, it is important to understand the different levels of housing policies (DP):

DP-1

DP-1 coverage is the most basic option, protecting only against certain specific risks, such as:

• Fire.
• Explosions.
• Storms.
• Strong winds. 
• Hail.
• Unrest.

It is a named perils policy, which means that the insurer will only cover the risks that are explicitly mentioned in the policy. We recommend that you examine in detail what type of events this policy protects you from.

DP-2

DP-2 is an intermediate option between DP-1 and DP-3. Although it also covers specific risks, it offers greater protection than DP-1. Some of the risks it usually covers are:

• Falling objects.
• Good heavens.
• Theft damage. 
• Frozen pipes.
• Vandalism.
• Broken glass.
• Accidental overflow of water or stream.
• Weight of snow and ice.
• Cracking, bulging or tearing of structures. 
• Damage to the main structure.

DP2 pays claims based on replacement value (RCV), meaning that depreciation is not applied to the payment. Instead, claims are paid based on the current repair cost.

DP-3 

The DP-3 is the most comprehensive option for rental properties and is generally the most suitable package. 

This is an open peril policy, meaning it covers all risks unless specifically excluded from coverage. Like DP-2, this coverage is RCV type, allowing you to avoid significant expenses in the event of a claim.

In the case of New Jersey, you can obtain information on the official state website or by consulting with our real estate attorney. 

How much does homeowners insurance cost in New Jersey? 

The cost of landlord insurance in New Jersey varies, but on average can range from $1,500 to $2,000 per year for a single-family rental property. 

However, the exact price will depend on several factors, such as:

• Property size,
• Location, 
• Property standard,
• Coverage limits, 
• Deductibles, and 
• Any additional coverage you choose. 

To get an accurate quote, you can request it directly through the websites of insurance providers in New Jersey.

Do I need homeowner’s insurance or landlord’s insurance?

If you plan to rent out your home occasionally, your homeowners insurance may not cover damage or liability resulting from this activity. 

In that case, you may need additional coverage or landlord insurance. Not having the right coverage could result in unexpected expenses, such as medical costs, legal fees, or property damage. 

How do I know which insurance is best for me?

To determine which insurance is most suitable, you must first evaluate the use of your property. If it is your primary residence, what you need is standard home insurance.

However, if the property is used as a rental property and you do not live there, you will need landlord insurance. Here are some key things to consider:

• Property type: Consider the types of property in New Jersey or another state. For example, a single-family home will require a different policy than a multi-family unit or condominium. 
• Coverage needed: Think about how much protection you need and compare quotes from different insurers to assess coverage levels.
• Terms and conditions: Review the terms of coverage, including the deductible and any exclusions that could affect the validity of the policy.

Is it really necessary to take out homeowner’s or landlord’s insurance?

The short answer is yes, it is essential to have homeowners or landlord insurance if you rent out your property. 

This becomes a priority when you do not live in the property, as the risk changes significantly:

• To begin with, as a property owner, it is not possible to constantly monitor the property or freely access it to check on its condition. 
• This limits the ability to detect problems such as moisture damage or worn carpets.
• Tenants are often heavily relied upon to report any areas that need repair. However, tenants are unlikely to be as concerned about maintenance as a landlord would be.

For these reasons, most standard homeowners insurance policies do not cover the risks associated with renting a home. 

Are you having problems with your tenants or are you one and facing housing issues? If so, you may need a landlord tenant lawyers in NJ or your state. 

Ways property owners can reduce their liability risks

To reduce liability risks, property owners can take the following steps:

Keeping the property safe and habitable

It is important to perform preventative maintenance regularly. Therefore, property owners must ensure that the property is:

• In good condition, 
• Safe for tenants, and 
• Complies with local building codes and health and safety regulations.

Thoroughly screen tenants

Background checks, credit history and employment references are recommended for tenants. 

This will be to detect potential risks that could lead to liability issues later on.

Establish clear lease agreements

It is key to have detailed contracts that specify the responsibilities of both parties to avoid disputes. 

This ensures that tenants understand their legal obligations and helps prevent misunderstandings.

Respond quickly to tenant complaints

Addressing complaints and requests for repair can prevent further damage or dangerous situations that could lead to liability.

Acquire adequate insurance

It is essential to have homeowners insurance that covers potential liability claims and protects property against unexpected accidents or damage. 

For example, those caused by natural disasters or fires.

At Curbelo Law, we recommend that all of our clients carry New Jersey flood insurance and a fire and smoke detector certificate.  

Stay up to date on laws and regulations

Landlords should be aware of local, state, and federal laws affecting rental properties to ensure they comply with all applicable legal requirements.

Additionally, it is recommended that tenants purchase their own renters insurance to protect their belongings and cover potential liabilities, as the landlord’s insurance will not cover your property in the event of damage, theft or destruction.

What should homeowners look for in homeowners insurance?

When purchasing homeowners insurance, it is key for homeowners to look for a policy that covers several essential aspects to protect both the property and their financial interests. Some of the most important coverages include:

Property Coverage 

This should include protection of the building and personal property used to maintain the property, as well as furniture or items used by tenants.

General liability coverage

This coverage is essential to protect the owner from claims by third parties, including tenants, arising from the condition of the property or activities related to it. This includes:

• Injuries, 
• Property damage, and 
• Legal defense costs.

Coverage for loss of rental income

Make sure your policy covers loss of income if the property becomes uninhabitable due to insurable damage, such as fire or flood. 

This will help offset the lack of rental income while the property is being repaired or replaced.

Franchises

Each policy has a deductible, which is the amount the owner must pay out of pocket before the insurer covers damages. 

Higher deductibles often reduce the annual premium, but it is important to choose an amount that can be paid in the event of a claim.

Coverage limits

Make sure your coverage limits are adequate to protect both the value of your property and your exposure to potential liabilities. 

These limits define the maximum amount the insurer will pay for a loss.

Additional coverage options

Consider adding additional coverages that may be necessary, such as flood, earthquake, or additional liability insurance. 

Talk to your insurance broker to customize your policy to the specific needs of your property.

Legal advice when choosing between homeowner’s insurance vs. landlord’s insurance

As evidenced in this blog on homeowners insurance vs. landlord insurance, basic home insurance does not meet the needs of a rental home. 

Instead, it is recommended to obtain specific insurance to provide adequate coverage for a rental home.

If you live in New Jersey and are looking for legal advice regarding real estate procedures, do not hesitate to contact our firm. With more than 10 years of successful experience, Curbelo Law stands out in the purchase and sale of real estate and other transactions.