Texas Rental Property Insurance


texas rentalAlso known as Landlord Insurance or Dwelling Fire Coverage, Rental Property Insurance is there to protect your investment that provides you a steady stream of income.  All types of hazards, from kitchen fires to lightning strikes, could damage your property – and your wallet.

CLICK HERE to download a free copy of “Investment Property Protection” to better insure your rental properties.

There are 3 different types of policy forms available*:

  • Dwelling Fire – BASIC Form 1 (DP-1) provides coverage on a named peril basis meaning that only the named causes of loss will be covered.   This policy will settle claims using ACV, or Actual Cash Value which determines the value of property factoring in depreciation.  Vandalism and Malicious Mischief (VMM) coverage is defined as intentional injury or destruction of property and can be added to this type of policy as an endorsement.  Some companies will offer a DP-1 with Replacement cost which provides the coverage for the listed perils without factoring in depreciation.
    • DP-1 will typically cover the following perils:
      • Fire and Lightning
      • Internal Explosion
      • Extended Coverage can be added to also cover:
      • Windstorm or Hail
      • External Explosion
      • Riot or Civil Commotion
      • Damage by Aircraft
      • Damage by Vehicle
      • Smoke
      • Volcanic Eruption
  • Dwelling Fire – BROAD Form 2 (DP-2) is a step up in coverage from the DP-1 covering more named perils and providing replacement cost coverage instead of ACV on Coverage A (Dwelling) and B (Other Structures).
    • DP-2 covers these perils in addition to those listed on the DP-1:
      • Vandalism & Malicious Mischief
      • Burglary Damage
      • Weight of Ice & Snow
      • Glass Breakage
      • Accidental Discharge or Overflow of Water or Steam
      • Falling Objects
      • Freezing of Pipes
      • Power Surge from an artificially generated electric current
      • Collapse
      • Tearing Apart, Cracking, Burning, Bulging of HVAC, water heater, or automatic fire sprinkler
  • Dwelling Fire – SPECIAL Form 3 (DP-3) provides open peril coverage which means it covers everything unless specifically excluded in the policy language.  This is the best coverage available and settles claims using replacement cost vs. ACV policy (depreciated value of the dwelling that factors in wear and tear).  With the DP-3 policy, Vandalism and Malicious Mischief (VMM) and Water Damage are included or can be added as an endorsement to the policy.   This policy is most similar to a homeowners policy since it provides coverage for loss of rent (called loss of use on a homeowners policy) to allow for rental income to be paid while the home is being repaired from a covered peril.
    • DP-3 excludes:
      • Ordinance or Law
      • Earth Movement
      • Water Damage (some may be included in the policy)
      • Power Failure
      • Neglect
      • War
      • Nuclear Hazard
      • Intentional Loss
      • Governmental Action
      • Mold (some may be included in the policy)

Here are some of the properties covered under this type of insurance:

  • Duplexes, triplexes and quads
  • Condos
  • Apartments
  • Attached Townhome
  • Older and lower-value homes
  • Single Family Homes
  • Vacant homes
  • Properties under renovation

*Some coverages listed above have different exclusions depending on the insurance carrier the policy is written through.  Contact your Ryan Everet Insurance agent today to find out which policy type is best for your rental property or fill out the basic information here to start a quote– CLICK HERE.

  • Flood coverage – not included on a Dwelling Fire policy. National Flood Insurance Program – good pricing controlled by NFIP
  • Umbrella policies to protect assets – AKA Excess Liability – Additional Liability coverage that kicks in after the underlying limits are exhausted.
  • The difference between market value and replacement cost
    • Market Value is how much you could sell the house and land underneath it based on Supply and Demand in the area
    • Replacement or Insurance Value – How much would it cost to rebuild the house? Most companies use $80-140/sf depending on the characteristics of the home.
  • Replacement vs. ACV –
    • Replacement cost is a claim settlement method that replaces losses to property with without depreciation. – BEST
    • ACV stands for Actual Cash Value which is the  depreciated value of property based on its expected useful life. – Lower premiums but less happy clients when it comes time for a claim payout. (see Attached Example)
  • Coinsurance –
    • Since most losses are not total losses, insurance companies require that the home be “insured to value” usually at least 80%. This keeps people paying their fair share of premiums in relation to the claim payout.  (see Examples attached)
  • Sudden and accidental vs wear and tear –
    • Insurance is intended to cover Perils such as fire, wind damage, hail, theft, water damage (over a short period of time) and more. Insurance is not a maintenance plan.
  • Vacancy coverage limitations and issues – Some companies have a 30 days vacancy clause (usually with Homeowners policies) and a 60 day clause for Dwelling Fire policies. Longer vacancies could affect the coverage in the event of a claim.  Recommend Vacant Building policy if you know it’ll be unoccupied for a while.
  • Investors with 10-20 or more units may want to consider using Blanket Building coverage or Reporting Form policies vs. individual building coverage to make premium cost more efficient. All properties can be on a single policy.
  • Ownership –
    • Are you buying property in personal name, LLC, S-Corp?  This can dictate what policy form may be available.  For example, Single Family Home owned personally and sometimes by LLC can be written on Personal Lines policy but not usually the case when corporate owned.

Renters insurance for all tenants should be required –

  • Make sure tenants are 100% clear that your property insurance doesn’t cover their “stuff”. You can only insure something you own – insurable interest.
  • Adds a layer of protection before lawsuits would hit your liability.
  • It also protects your own loss ratio which becomes more and more critical as your portfolio grows.
  • Just remember, anyone can sue anyone, so the lawsuit could skip your tenants policy, but liability should legally land on who is at fault.  Ex: no handrail on stairs over 3 steps – Landlord.  Tenant spills boiling water on guest – Renter Insurance
  • Landlord named as an Additional Insured – Use the tenants liability policy if the owner is sued for actions of the tenant.
    • Additional Interest is less powerful and is intended to notify the additional interest if the policy lapses.
  • Recommendations –
    • NO trampolines allowed in the lease.
    • No dog allowed in the lease, especially naughty breeds – Doberman, Rottweiler, German Sheperd, Pit Bull, Chow Chow, etc.
    • NO blow-up pools allowed in the lease – Why? Most renters do NOT carry renters insurance, so liability WILL fall on you- the landlord!