Middle Georgia is a haven for entrepreneurs who buy homes on the courthouse steps and turn them into income as rental property. With the past downturn of the economy, many homeowners became delinquent in their mortgage payments and defaulted on their property. The property was turned into rental income by investors, and the former property owner had to scramble to find affordable housing.
The owner of the rental property has the option of insuring the structure at replacement cost or actual cash value. Most select the actual cash value option with an amount of coverage to cover their investment in the property, since in the case of a total loss they would not rebuild the structure. The insurance premium for this coverage is less than the replacement cost coverage. Again, this is just coverage on the dwelling itself. The renter is responsible for insuring their contents with tenant insurance which is a very affordable coverage and can be bundled with auto insurance for the lowest rate.
Most insurance companies will inspect the property to make sure it is in insurable condition and in some cases, refuse to continue coverage on it, or make recommendations to fix certain items such as the roof, porch or siding.
Since most rental homes are written as actual cash value, they are written on one of two coverage forms. The Dwelling Fire Policy One, covers the structure for named perils such as fire and lightning. Coverage for named perils such as malicious mischief and other non-weather related perils can be added to the DP-1 form, but that would mirror the Dwelling Fire Policy Three or DP-3. The more perils you insure against, the higher the price of the insurance. Again, these are both named perils policies versus a homeowner’s policy which is more of an all-risk policy with named exclusions. If you do have rental property, make sure you have the correct policy form for the exposure.
There are other coverage provisions the property owner may select, such as personal property coverage for any of their property that they keep in the rental home, possibly for repairs of maintenance, loss of rent coverage in case the tenant cannot occupy the residence due to a covered loss, such as fire or a water loss. It pays for loss of that income to the property owner. It does not pay the tenant’s cost of relocating. That coverage would be included in the tenant’s tenant policy if they select that coverage.
The property owner would also select liability coverage to protect themselves against any liability arising from their negligence in the maintenance of the property, or against any lawsuits as a result of their ownership of the property. Seek counsel with an insurance professional to be properly covered.
Dave Pushman is the former regional vice president of Geico in Macon and is now an independent insurance agent with Tidwell and Hilburn Insurance. He can be reached at firstname.lastname@example.org.