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The Best Homeowner’s Insurance Policy For Your Rental Property

best-homeowners-insurance-policy-rental-property-marylandAs a real estate professional who owns rental property, it is crucial you make an effort to protect your investment in every way possible.  One of the best ways to do that is to have a homeowner’s insurance policy in place from the minute a tenant takes up residence in your income property.

Finding the right homeowner’s insurance policy to fit your needs is no easy task.  With so many different policies available to choose from, it is easy to become confused.  That’s why today we are going to look over the most common types of homeowner’s insurance policies offered so that you can protect your most valuable asset – your rental property.


Top Homeowner’s Insurance Policies for Your Investment Property

top-insurance-policies-homeowners-rental-property-marylandThere are several types of homeowner’s insurance policies to pick from, each offering varying levels of coverage.  It is important you research your property’s needs and compare those to the policy you plan to purchase to make sure you have the necessary coverage.

1. HO-1

This is the most basic type of coverage you can have for your investment property.  It only provides dwelling coverage against 10 perils (specific events that cause damage to your property):

  • Volcanic eruption
  • Explosions
  • Fire or smoke
  • Lightning
  • Riots and civil commotion
  • Theft
  • Vandalism
  • Hail and windstorms
  • Damage from vehicles
  • Damage from aircraft

It is important to keep in mind that this policy typically does not cover personal liability, meaning if someone gets hurt while on your property, there will be no coverage for any damages incurred.  However, if you are requiring your tenants to have their own renters insurance policy, this shouldn’t matter.


2. HO-2

Also called a broad coverage policy, the HO-2 covers your investment property’s dwelling as well as attached structures such as a detached garage or fence.  Moreover, this type of policy generally covers personal belongings and personal liability.  That said, it only covers the 10 perils listed in the HO-1 policy as well as these six additional perils:

  • Falling objects
  • Weight of sleet, ice, or snow
  • Freezing
  • Accidental overflow of water or stream
  • Sudden or accidental tearing, cracking, burning, or bulging of pipes
  • Sudden or accidental damage from artificially generated electric current


3. HO-3

An HO-3 policy is the most common form of homeowner’s insurance policy purchased by homeowners of all types.  It insures your property’s dwelling and detached structures and covers everything except what is excluded from the policy.  The HO-3 is very different from the HO-1 and HO-2 policies and you should research your policy thoroughly before signing an agreement.

Every HO-3 policy will differ slightly depending on the exclusions that your specific policy states.  However, for a general idea of perils that are not covered in an HO-3 policy, check here.  To give you an idea of some of the most common exclusions, many HO-3 homeowner’s insurance policies do not provide coverage in the case of an earthquake or flood.  This means that if you are in a region that is prone to those types of natural disasters, you might want to consider purchasing additional insurance on top of your HO-3 policy to protect your property.


4. HO-4

This special type of homeowner’s insurance is designed to protect your tenants’ personal belongings and any personal liability claims involving the tenant.  Additionally, this policy covers displacement costs should your tenant have to reside elsewhere because of damage to your property, medical bills due to an injury, and the basic liability coverage should your tenant sue.

This is not something you would normally purchase if you require your tenants to have renters insurance.  However, if you do not require renters insurance, this might give your (and of course your tenants) an extra layer of security in the case of an emergency.


5. HO-5

Noted as the best homeowner’s insurance policy you can have thanks to its broad range of coverage, the HO-5 operates similar to an HO-3 in that the only perils not covered under the policy are those that are specifically listed in the policy itself.  However, the HO-5 differs from an HO-3 because it typically covers more perils and has personalized limit options when it comes to personal liability coverage amounts.  This type of insurance is usually the most expensive because it covers the widest range of damages.


In the end, protecting your most important asset should be your primary concern when in the rental property industry.  After all, a damaged property does you no good, especially if there is no insurance policy in place to cover the expenses incurred.

Before agreeing to a specific homeowner’s insurance policy for your investment property, make sure you discuss your individual needs with a qualified insurance agent so there are no surprises in the event of an emergency.  With all of the options available, there is sure to be a homeowner’s insurance policy to match your needs and budget.

One thought on “The Best Homeowner’s Insurance Policy For Your Rental Property

  1. LNWeaver says:

    Thanks for this list of insurance types. HO-1 seems like it would cover most of your needs like fire, smoke, and disasters. Controlling your liability is important when investing. I bet you could even get a property management firm and turn your property into purely passive income.

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