Most homeowners have insurance, since in order to obtain a loan they have to have proof of home insurance. But what about a homeowner who owns a condominium that is used as income property? Do you need to have home insurance on that property? Insurance on single family homes can vary a great deal from insurance of attached homes where an HOA is involved, and homeowners need to clearly understand the policies and liabilities.
Condo Insurance Coverage
There are 3 important insurance considerations when it comes to condo owners who rent out their properties:
1. HOA master insurance policies: Most HOAs have one of two types of insurance master policies – the majority I have seen are exterior coverage only, so the outside of the units are covered, usually including the roof and any decks, stucco, etc. Some have extended policies that cover more – make sure that you understand exactly what your HOA policy covers. These policies will cover damage from events like wind blown rain, fire, etc., but do not cover any personal belongings inside the home.
2. Liability insurance: If your HOA covers the exterior and you have tenants in the property, it is the responsibility of the tenants to obtain content coverage for their interior belongings and personal property. If they do not have such coverage and there is an issue that causes damage to their things that is not covered under the HOA master insurance policy – for example, say a pipe burst in the wall – you are not off the hook as a landlord/owner and could be sued. You can obtain liability insurance to cover yourself in such situations. Usually this can be done through your homeowners insurance policy on your primary residence, via an extension of the liability policy to your other (non-primary) property. Check with your insurance agent.
3. Tenant content coverage: As I mentioned above, tenants should obtain content coverage for their personal belongings.
4. Optional coverage: As a landlord-owner your insurance company can likely offer you other forms of insurance coverage to protect you in case of damage to the home, such as personal property coverage or optional replacement cost coverage (say there is a fire or flood and your appliances and flooring are damaged). It is important to talk to your insurance agent to determine what is available to you and which coverage is best for your protection.
Single Family Home Insurance Coverage
If you own a single family detached home it is a different scenario, even if you rent it out. You must have homeonwers insurance on the property in order to close escrow if you are obtaining a loan. If down the road you don’t pay your insurance policy, the insurance company is required to notify the lender in 30 days. The lender sends out a letter to the homeowner giving him/her 30 days to get insurance back up and running.
If the homeowner does not obtain insurance within the time frame after the letter is received, the lender can order a forced place insurance policy on the home and tack the balance onto the homeowner’s loan amount. This protects the lender should the home burn down or suffer from some other natural disaster or issue.
Sometimes the lender is not notified that the homeowner’s insurance policy has lapsed, due to faulty paperwork or failure of the insurance company to notify the lender for some other reason. This can create problems for both the lender and the homeowner if there is ever a problem with the property.
It is in your best interest as a homeowner to make sure your insurance policy covers you in the best way possible. If you own investment property that you rent out, or even a second home, make sure you understand how you are covered, especially when an HOA is involved. If you have a condo/townhome, make sure you are covered there as well, and look into liability insurance to prevent lawsuits. Make sure you have a smart, informative insurance agent who can help you decide which coverage is best for you.