Owning and renting real estate can prove to be one of the best decisions you make in your financial life. To protect that investment, you need proper insurance in place. More people are renting than ever before, and each one needs a quality place to call their own. As the number of rental units grows, investors and landlords bear the responsibility of minimizing financial risk — and having landlord insurance in place is a key part of that.
Consider the risks to your investment. A storm could trigger a lightning strike that causes a fire, damaging your property considerably — and leaving you to cover the repairs out of pocket. What if someone vandalizes your property? There is no way to prevent every risk, but you can take steps to protect your financial integrity.
What is landlord insurance?
Landlord insurance provides financial protection for rental property owners. It covers the financial losses you suffer as a result of covered incidents. When a covered loss occurs, you want confidence that your property will be repaired or replaced.
Keep in mind that most insurance companies require you to notify them if you are renting out the property. This may change your coverage needs as well as your costs.
A landlord insurance policy is often the best choice. It provides ample coverage for many of the risks you are most likely to face. Consider some of them.
Coverage in a landlord insurance policy
Insurance companies vary, but most landlord policies share three main components — each offering several ways the policy can protect you.
1. Dwelling Coverage
This component of landlord insurance typically covers the physical damage to the property. Some coverages include:
Fire Damage
If your property suffers fire damage that you did not cause, the policy may apply. It may cover structural damage so you can make repairs or rebuild, and it typically covers your contents — the personal property you own within the structure.
Water Damage
Many types of water damage may be covered under your policy. That includes a broken water heater or pipes freezing in winter. It may not cover all types of flooding, though. You'll need flood insurance in some areas to minimize this risk.
Windstorm, Hail, and Lightning
Most landlord insurance policies cover storm-related damage, including falling tree branches, hail strikes to windows and the roof, and lightning that causes structural damage or fire.
Riot and Civil Commotion
Your landlord insurance may also cover the cost of repairing damage brought on by rioting and civil commotion. Verify this is included in your policy if it matters to you, as coverage terms vary by insurer.
Vandalism
If someone vandalizes your property, your landlord insurance policy may help cover repairs — such as fixing broken windows, removing graffiti, or addressing other vandalism-related damage. Keep in mind that this applies to vandalism done by a person that does not live within the home.
Burglary
If someone breaks into your property or steals your personal belongings, your insurance policy may help cover those losses — including structural damage such as a broken door or window — as well as the cost of the stolen items. Your policy may offer actual cash value coverage or replacement cost coverage, depending on what you select. Note that your landlord policy covers your belongings, not your tenant's. They can purchase a separate renter's policy to cover their losses.
2. Landlord liability insurance
Another component of your landlord policy covers liability risks. Liability arises when someone files a claim against you for an accident or incident on your property, holding you responsible for their losses. Legal liability is a critical component of your property. Your tenants, a passerby, or a visitor could be injured on your property. If they fall and sustain an injury, they could face significant medical costs — and you could be held responsible if the property is found to be unsafe.
Liability insurance helps you in several ways. It may help to pay for the individual's losses. It may also help you in a court of law, helping to provide you with an attorney who can defend your case. If a settlement or a judgment occurs, the insurance company pays that up to the maximum coverage of the policy.
Related Reading: Does Landlord Insurance Cover Legal Costs?
Umbrella Coverage
Umbrella coverage is a type of liability insurance that goes up and over the amount of liability policies. Lawsuits can result in significant losses that a basic liability policy may not fully cover. This type of policy adds another layer of protection for you in this situation. It could help cover more of the medical losses a person has as well as the settlement or judgment against you.
3. Loss of income insurance
The third type of coverage provided by landlord insurance is loss of rent — also called loss of income — which applies when a covered event makes the property temporarily uninhabitable and unrentable. It can help to cover a portion of the rental income you were getting prior to the incident, allowing you to meet your financial obligations while you cannot rent out the property.
Additional types of landlord insurance
There are other components that may be applied to your landlord insurance. If any of these situations apply to you, speak with your insurance agent about adding the right coverage.
Fix n' Flip and Builder's Risk Insurance
Many investors purchase properties they plan to fix and flip — a process that comes with uncertainty, since the full scope of repairs often isn't clear until work begins. Builder's risk insurance may offer the help you need. It helps to cover certain types of property damage that occur during the repairs. It may provide protection while the property is under construction, including damage from fires, lightning, vandalism, theft, explosions, and others.
Related Reading: What is House Flipping Insurance, and Why do You Need It?
Short Term / Vacation Rental
If you plan to offer short-term or vacation rentals, it is important to have a policy that explicitly covers that type of use. Vacation rentals and Airbnbs are generally considered higher risk than long-term rentals, as short-stay guests tend to be less invested in the property's condition. Your insurer needs to understand those risks to ensure you have adequate coverage.
Related Reading: Ultimate Guide to Short-Term Rental Insurance
What does landlord insurance not cover?
When selecting landlord insurance, understanding what is and isn't covered is essential. Coverage details vary by policy and insurer, so reading the terms and conditions of any policy you consider is the most reliable way to know exactly what's included.
Some of the most important exclusions to landlord insurance include the following:
- The tenant's property – most policies do not cover the tenant's property, and many landlords require or encourage renters to obtain their own policy for these items.
- The tenant's car – the same applies here, as the tenant should seek out their own coverage
- Landlord insurance does not cover repairs to major systems
- It does not cover damage caused by the property owner, such as if a property owner causes damage to the rental itself
- It does not cover anything that stops working due to normal wear and tear or a lack of maintenance
How much can you expect to pay for landlord insurance?
The most reliable way to know what you'll pay for landlord coverage is to request a formal quote. Your location, property type, risk profile, and other factors all affect the cost. Premiums are typically based on the risks present, the replacement value of the property, and the amount of liability coverage you choose. A general rule of thumb is that landlord insurance costs 20-25% more than traditional homeowners insurance.
Get a quote with Steadily in minutes to determine what the best level of insurance coverage is for your needs.
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