Welcome back to Harry Levine Insurance on YouTube. I’m Jason Levine and I’m here to talk to you today about dwelling fire insurance.
What is Dwelling Insurance?
A lot of people don’t know the difference, nor should they, between homeowners coverage and dwelling fire insurance. The two types of policies are actually very, very similar; the principle difference is in the design.
Homeowner’s insurance is for just that: a homeowner, typically someone who has a primary residence or a secondary or seasonal property.
Dwelling fire insurance is usually used (though not exclusively) for homes that are rented out to a tenant. So don’t think of it as renter’s insurance—that’s a whole ‘nother ballgame. But it is insurance for a home that is rented to a third party—your investment property, so to speak.
Is dwelling insurance different from homeowners insurance?
So, what are the differences between homeowners insurance and dwelling fire insurance? There are a few but, principally speaking, a dwelling fire policy provides much less personal property coverage.
Your homeowners policy provides coverage for everything that would fall out of your house if you took the roof off, turned it upside down, and gave it a good shake. For instance, your clothing, your TV, your furniture, things like that (appliances, too).
On a dwelling fire policy, typically we see a limit as low as even $0, but somewhere between $5,000-$10,000. That’s because that limit for personal property is aimed at covering things like the washer/dryer, oven range, and microwave, that are typically provided by the landlord or the investor who owns the property.
On a homeowners policy, when we’re covering all of that stuff plus all your goodies and gadgets, we typically see a limit that’s built in somewhere between 40-75% of the Coverage A Limit.
What is Coverage A and, as a homeowner, what do you need to know?
Whoa, hold on! “Coverage A? What’s that?” you’re saying. That is insurance lingo and unfortunately, our industry is phenomenal at word-vomiting lingo right at you.
Coverage A is a fancy way for us to talk about the building value that is insured. So in other words, if it would cost $250,000 to reconstruct your home that you own, that’s your Coverage A amount: $250,000.
It’s important to remember that Coverage A does not take into account neighborhood intrinsic value or the value of your land. We’re literally talking about just putting the building back the way it was if, God forbid, it was damaged or completely destroyed.
Doesn’t matter what school district you’re in. Doesn’t matter how big your piece of land is. It’s all about the building. And that’s Coverage A: what does it cost to put it back?
Dwelling Fire vs. Home Insurance
So let’s talk a little bit more about dwelling fire vs. homeowners.
Another principle difference is you’ll notice a coverage on homeowners called “loss of use.” This coverage is designed to pay for hotel rooms, food receipts, and things like that if you’re unable to live in your home due to a covered cause of loss or a claim that the policy does cover.
Why You Need Dwelling Insurance
On a dwelling fire policy (for those rental properties, remember) you’ll often find that coverage called “loss of rental value.”
What that means is that you will actually be eligible, within the bounds of your specific policy, to receive rent as if it was coming from your tenant, but from your insurance company.
Again, this is only if the property has to be vacated because of a loss or a claim that’s covered by the policy.
Why is dwelling fire insurance less that homeowners insurance?
That’s why dwelling fire insurance is often a little bit less expensive than homeowner’s insurance. It’s dealing with a few coverages that are quite similar to homeowners, but then those principle differences kick in, primarily in the personal property values, which can often differ by hundreds of thousands of dollars.
So there you have it. Homeowners: that’s for the place you live or the place you call home on a secondary or seasonal basis. Dwelling fire insurance in almost all cases (and there are exceptions) is for that rental property that you’ve got a tenant in.
What are the exceptions?
So what are the exceptions to when a dwelling fire policy might be used, say, on a homeowners?
Well, unfortunately, as can be the case here in Florida (particularly in South Florida, in the Miami, Palm Beach, and Ft. Lauderdale areas), the market can sometimes constrict. There can be very little coverage available and what is available is only at very, very high prices.
That’s when a dwelling fire policy could actually be used for a principle residence: the place where you live, as the owner.
Another situation is if you’ve had a series of claims. Because the dwelling fire insurance is more restrictive when it comes to coverage than a homeowners policy, they can actually be used so that you can have some insurance (instead of none) if you become ineligible for typical homeowner’s insurance.
Stay tuned for our next couple of episodes, where you’ll continue to learn about some awesome tips and tricks about all kinds of insurance.
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Thanks a lot, guys.