Homeowners insurance is generally cheaper than landlord insurance for the same property. Landlord insurance policies typically cost about 25% more than homeowners insurance. The primary reasons for this difference in cost are centered around who occupies the home and the distinct risks associated with each type of occupancy.
Understanding the Cost Difference
The core distinction between homeowners and landlord insurance costs lies in the perceived risk. When you own and live in your home, insurance companies assess a certain set of risks. However, when you rent out a property, the risks diversify and often increase, leading to higher premiums for landlords.
Why Homeowners Insurance is Less Expensive
Homeowners insurance is designed for owner-occupied properties. When you live in your home, insurers assume you will take greater care to maintain the property and prevent damage. This personal oversight often translates to fewer claims related to neglect or minor issues. Coverage primarily focuses on:
- Dwelling Protection: Damage to the structure of your home (e.g., fire, storm).
- Personal Property: Your belongings inside the home.
- Liability: Accidents that occur on your property, leading to injury or property damage to others.
- Additional Living Expenses: Costs incurred if you need to live elsewhere while your home is repaired.
Why Landlord Insurance is More Expensive
Landlord insurance, also known as rental property insurance, covers properties rented out to tenants. The higher cost reflects the increased exposure to various risks that come with tenants occupying the property instead of the owner. These risks include:
- Tenant-Related Damage: Tenants may not treat the property with the same care as an owner, potentially leading to accidental or even intentional damage.
- Increased Liability: Landlords face a broader range of liability issues, from tenant injuries on the property to disputes over lease agreements or evictions. The property is open to more people (tenants and their guests), increasing the potential for accidents.
- Loss of Rental Income: This is a key coverage for landlords, protecting against lost rent if the property becomes uninhabitable due to a covered peril. Homeowners policies do not offer this.
- Fewer Direct Eyes on the Property: Without the owner living on-site, minor issues might go unnoticed for longer, potentially escalating into larger, more expensive problems.
Key Differences: Homeowners vs. Landlord Insurance
Here's a breakdown of the primary distinctions between the two types of policies:
| Feature | Homeowners Insurance (HO-3/HO-5) | Landlord Insurance (DP-3) |
|---|---|---|
| Primary Insured | Homeowner (occupant) | Landlord (non-occupant) |
| Cost | Generally Lower | Approximately 25% Higher for the same property |
| Coverage Focus | Dwelling, Personal Property of Owner, Personal Liability | Dwelling, Landlord's Personal Property (e.g., appliances), Rental Income, Landlord Liability |
| Personal Property | Covers the owner's personal belongings | Does NOT cover tenant's personal property (tenants need renter's insurance) |
| Liability | Covers liability for incidents on the property affecting guests | Covers liability specifically related to the rental business and tenant injuries |
| Additional Living Costs | Covers alternative accommodation for the homeowner | Covers loss of rental income if property is uninhabitable |
| Risk Assessment | Based on owner's occupancy and care | Based on tenant occupancy, increased usage, and potential for tenant-related issues |
Factors Influencing Insurance Costs
Beyond the type of occupancy, several other factors contribute to the overall cost of both homeowners and landlord insurance:
- Location: Properties in high-risk areas (e.g., prone to natural disasters like hurricanes, earthquakes, or wildfires, or areas with higher crime rates) will have higher premiums.
- Property Characteristics:
- Age and Construction Materials: Older homes or those built with certain materials (e.g., wood vs. brick) may cost more to insure.
- Roof Age and Condition: A newer, well-maintained roof can lead to lower premiums.
- Safety Features: Installation of security systems, smoke detectors, and fire suppression systems can offer discounts.
- Deductible Amount: A higher deductible (the amount you pay out of pocket before your insurance kicks in) typically results in lower monthly premiums.
- Coverage Limits: The higher the coverage amount for your dwelling, personal property, or liability, the higher your premium will be.
- Claims History: A history of previous claims can increase future premiums.
- Credit Score: In many states, your credit-based insurance score can influence your premium.
Practical Insights
- Tenants Need Renter's Insurance: It's crucial for landlords to understand that their policy does not cover the tenant's personal belongings. Landlords should encourage or even require tenants to purchase their own renter's insurance policy.
- Review Your Policy Annually: Whether you're a homeowner or a landlord, review your policy annually to ensure your coverage still meets your needs, especially if you've made significant renovations or if market values have changed.
- Bundling Policies: Many insurance providers offer discounts for bundling multiple policies, such as auto and home insurance, or multiple landlord policies.
- When to Switch from Homeowners to Landlord Insurance: If you decide to rent out a home you previously lived in, you must switch your homeowners policy to a landlord policy. Failing to do so could result in denied claims as your standard homeowners policy will not cover rental property specific risks.
