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Landlords renting out a residential property (house, vacation cottage, apartment) might be surprised to learn that their homeowners insurance will not cover all the costs in the case of a natural disaster, accident, or another damaging event. As a result, landlords will typically need landlord insurance.
Key Takeaways
- Homeowners insurance will not cover a dwelling that is not owner-occupied, which is why you need landlord insurance.
- The core coverages of landlord insurance include property damage, liability protection, and rental income lost due to a tenant’s inability to rent.
- Additional riders—or add-ons to policies—can be purchased to cover income lost when a tenant misses a rent payment and flood damage.
- Certain policies can also cover expenses incurred from repairing a building following damage.
Why You Need Landlord Insurance
Typically, your current homeowners insurance policy only covers owner-occupied homes. If you start renting out to someone else, the coverage no longer applies.
Renters are generally not held liable when a large appliance malfunctions or a person suffers an injury on the property (through no fault of the tenant). Also, if a forest fire damages or destroys your home or burglars rob the place, you could be left out to dry for these or other misfortunes caused by humans or Mother Nature.
The cost of a home improvement loan to repair or renovate a property following a disaster can be significant. Landlord insurance can help, but these policies come in all shapes and sizes. Before you begin price shopping, consider what you need to specifically address and protect against in your rental property.
What Does Landlord Insurance Cover?
A good, comprehensive landlord insurance policy will have three core protections:
- Property damage: This is coverage in the event that the real estate or furnishings suffer from a natural disaster, fire, electric/gas malfunction, earthquake, vandalism, or irresponsible tenants. If possible, try to get a policy that offers replacement costs instead of the actual cash value (especially if fixtures and furnishings are old) or a predetermined lump sum of cash.
- Lost rental income/Rental default insurance: Should something cause your property to be totally uninhabitable (severe mold, termites, a rat infestation, or a sinkhole), this feature provides temporary rental reimbursement to cover the rent money you’d otherwise receive if tenants could be occupying the property.
- Liability protection: This is coverage for the medical or legal costs that might ensue if a tenant or visitor suffers injury due to a property maintenance issue (such as icy walkways, architectural collapse, or an out-of-control hive of bees).
You might also see underwriters refer to different packages as DP-1, DP-2, or DP-3 (DP stands for “dwelling property”). Each of these refers to varying levels of coverage, with DP-1 being the most basic and DP-3 representing the most comprehensive.
Important
If you hire a property manager, beware of the red flags that might indicate property manager fraud against a landlord, including frequently paying the collected rent late, not providing proper documentation for expenses, or conflicts of interest such as hiring maintenance workers who are related to the property manager.
Additional Coverage
There are several common riders that can come with landlord insurance policies. They’re not as vital as the key provisions mentioned above, but they could come in handy and save you some money in the long run.
- Guaranteed income insurance: This covers the landlord if a tenant comes up short and misses the rent payment for one month (or doesn’t pay at all).
- Flood insurance: As many landlord insurance policies don’t include flood damage related to natural disasters or municipal plumbing, this coverage is worth adding if the property is in a flood-prone zone.
- Emergency coverage: In the event a tenant calls you out to fix something, such as a leaking dishwasher, or because they were accidentally locked out of the house, this feature can help cover some or all of the costs you incurred to travel to the property and resolve the issue.
- Additional construction expenses: This will cover expenses incurred bringing a building up to code after it has been damaged.
15%
The amount by which landlord insurance is generally more expensive than homeowners insurance
How Much Does Landlord Insurance Cost?
According to a 2023 (latest information) Policygenius analysis, the average cost of homeowners insurance is $1,754 in every U.S. state and zip code, though prices can vary significantly based on several factors, including your location and the age of the property.
However, as rental properties are more prone to damage and incidents, you can expect to pay about 15% more for landlord insurance on the same property, according to the free real estate investment tracking site Stessa.com.
Short-Term Rentals
There is an inverse relationship between the price of your premiums and the length of time the property is in service. For example, expect to pay nearly double in annual premiums if you rent out your home for only 12 weeks instead of an entire year. The reasoning behind the higher premiums is that short-term renters:
- Are less likely to notice (or mention) maintenance issues
- Can be more careless
- May not understand the layout of the house and the location of the plumbing, load-bearing supports, or electrical wiring
All this can increase the probability of problems and the insurer’s risk.
Important
Landlord insurance does not cover a renter’s belongings, so it’s wise to counsel your renter to consider getting renters insurance.
Bundled Policy
When shopping for policies, be sure to ask your homeowners insurance provider about bundle options. If you sign up for homeowners and landlord insurance through the same company, you may receive a discount.
What Do You Need to Insure as a Landlord?
The basic level of landlord insurance typically covers property damage, liability protection in case someone gets injured on the property, and lost rental income.
How Is Landlord Insurance Different From Homeowners Insurance?
Homeowners insurance provides property and liability insurance for owner-occupied residences. If you rent out the property, you’ll need landlord insurance since your homeowners policy will not cover the rental unit.
Is Renters Insurance the Same as Landlord Insurance?
Renters insurance provides coverage for the tenant’s personal belongings in case they are damaged or stolen, and liability in case someone is injured. Conversely, landlord insurance covers the property owner renting out the unit for damage and liability.
The Bottom Line
Before renting out a property, review your homeowners insurance policy since it may not cover damages and liabilities while you’re not living there. If you want to protect your home and rent it out as well, landlord insurance is a must. You might also want to suggest that your tenants take out a renters insurance policy so that their own personal effects will be covered in the event of an accident.
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