Over the years, I have noted one policy that keeps changing and that is the dwelling fire policies. I assume because insureds are purchasing more rental properties (rental properties are now 50% of the market), they have evolved as well. Here are three reasons why you should have a dwelling fire policy on a rental property.
The biggest one of all. If someone is injured within or just outside the rental property, a dwelling fire policy can provide up to $1 million in liability coverage. Not all companies provide liability for the dwelling fire. However, more recently, many have started to include this coverage as it is part of the mortgage request.
In some cases, the insured may extend liability from their homeowner’s policy to the property, but there may be stipulations involved such as ‘rental property exclusion’. In other words, the insurer will extend only to a secondary home, not a rental location.
As an example: A recent judgment against a rental owner in Ohio where a fire killed two adults and two girls. The insurer settled on a $360,000 payment because the rental property lacked smoke detectors.
Loss of Rent/Fair Rental Value:
The rental burns down and now the insured’s tenants need someplace to live. The homeowner’s policy won’t pay them, only a dwelling fire will include this coverage.
For instance: In Maryland renter, Howard Stanback, was displaced from his rental unit due to a sewer backup. His landlord is searching for another place for him to live until cleanup can proceed. In the meantime, he is stuck in a hotel.
That hotel stay is covered under Fair Rental Value.
Personal Property and Replacement Cost:
Maybe the insured has furnished rental units that come with couches, chairs, beds, and tables. Under the homeowner’s policy, there is a commercial use exclusion. If the insured makes money off the home any claim – like damaged or stolen items – it is excluded and therefore denied.
Under a dwelling fire policy these items are not automatically covered; however, the coverage can be added with an endorsement and an additional fee.
It is fair to note that the dwelling fire policy comes as a DP1, DP2, and DP3 – with the DP3 being broad or ‘open peril’ form. I am referring above to the DP3 as this is the most popular and offers the best coverage.
The dwelling fire policy should be used for 1 to 3 family rental homes. Anything with four families and above would require a commercial policy.
In comparison, the homeowner’s policy is much cheaper than a dwelling fire; however, it is necessary for the proper coverage.