A 2023 Complete Guide to Landlord Insurance
Learning about landlord insurance for the first time or just looking to brush up on the basics? We have you covered with our comprehensive landlord insurance guide.
What is a Landlord?
While this may seem like an obvious question it is still valid to make sure we are all on the same page as far as terms go.
“A man (in legal use also a woman) who rents out land, a building, or accommodation.”
– Oxford Dictionary
Typically landlords own rental properties and they rent them out in exchange for money. This is called rental income.
What is Landlord Insurance?
Landlord Insurance is an insurance policy designed to cover property owners where there is damage to a property they rent out. What exactly does that mean? Here’s an example:
Annette owns an apartment building she rents out to tenants. One of her tenants accidentally starts a fire in their apartment, resulting in damage to that unit and a few others. Annette’s landlord insurance policy would help pay for the repairs or rebuilding needed to make those units inhabitable again, but would not cover the loss of her tenants’ personal property. If somebody is injured in this fire and wants Annette to pay for the medical fees, her landlord insurance would provide liability coverage for the resulting legal fees and medical expenses.
What’s the Difference Between Homeowner and Landlord Insurance?
If the property is your primary residence, you’ll need a homeowners insurance policy. Otherwise, if you’re renting it out, you’ll need to buy landlord insurance (sometimes called rental property insurance) from an insurance company.
- Homeowners Insurance: This insurance is only for your primary residence and covers the building and covers personal property damage, liability, and a few other things. See also Incidental Occupany.
- Landlord Insurance: Specifically, for property owners who plan on renting out a family home, apartment, or condo for an extended period and covers damages for events such as fires, burst pipes, or some natural disasters. Landlord insurance will also provide liability protection if a tenant or guest sues, and the property owner needs to pay for legal fees or medical expenses.
If you want to go more into depth about the difference between landlord and homeowners insurance. Generally, a landlord insurance policy costs about 25% more than a homeowners insurance policy for the same property.
This might sound like a large price increase when compared to homeowner insurance. Is it worth it? This is something that you are going to decide by weighing the pros and the cons.
What is a Deductible?
In a landlord insurance policy, the deductible is the amount paid out-of-pocket by whoever the policy is before an insurance provider will pay any expenses. The deductible can vary depending on the property, occupancy of the property, and what type of damage it is.
For example, if Annette’s rental property catches on fire, she would need to cover her deductible before her insurance provider would cover the rest of the damages. If her deductible was $1,000 and the total cost of the damage was $10,000, she would pay for $1,000 out of pocket, and then her insurance would cover the other $9,000.
Do I Need to Have Landlord Insurance?
While it’s not required by law, landlord insurance can help save you from catastrophic losses that may happen while managing a property. If a tornado or fire destroys your property, you would have to pay the property’s total cost out of pocket to rebuild it.
With insurance, you would only have to pay a small deductible. Your insurance can even provide additional coverage for other events, such as vandalism or theft if you add it to your policy (Vandalism and theft are known as human perils)
Landlord insurance applies to long-term rentals, periods over 30 days. If you want to do short-term rentals for Airbnb or VRBO, you’ll need a commercial, homeshare, or vacation rental policy instead of landlord insurance.
What about when you rent to family?
Yes, it is still wise to have landlord insurance. We have a dedicated post just for this specific situation.
What if I am just renting my room out?
Whether you need landlord insurance or if your homeowner’s insurance will still cover you will depend on your current homeowner’s insurance company and a few additional factors.
What are the Different Types of Landlord Insurance?
Your landlord insurance coverage depends on the type of insurance you select. The three most common types of landlord insurance are called “dwelling policies,” and as the numbers increase, the types of coverage expand.
Dwelling Policy 1 (DP1): Very Limited Coverage
As the coverage is so limited, DP-1 policies are the cheapest choice and the least popular for landlords. DP-1 is a basic policy that lists ten specific causes that are covered. If there is a claim stemming from one of the covered causes, the policy will reimburse the actual cash value (ACV), which is the depreciated rebuild value of the property. This means that the payment amount would be significantly less than the landlord’s cost to repair the damage, and the landlord would have to make up a large difference out of pocket.
The cause of damage or “perils” that the DP-1 covers are: Fire & Lightning, Internal Explosion & External Explosion, Windstorm & Hail, Riot & Civil Commotion, Smoke, Aircraft, Vehicles, Volcanic Explosion, Vandalism & Malicious Mischief
Dwelling Policy 2 (DP2): Moderate Coverage
The biggest difference between this policy and DP-1 is that DP-2 pays out the replacement cost value (RCV) instead of the depreciated cash value (ACV). This means that when the property is damaged, the policy will pay to restore the property to its original condition. This distinction between RCV and ACV is crucial and is often tens of thousands of dollars.
DP-2 policies can include loss of income coverage. If tenants have to move out because of covered damage and the landlord stops earning rent, the policy can pay the landlord for the lost rent until the repairs are completed.
Last, DP-2 covers all the perils from DP-1 and also Burglary Damage, Weight of Ice & Snow, Glass Breakage, Accidental Discharge or Overflow of Water or Steam, Falling Objects, Freezing of Pipes, Electrical Damage, Collapse, Tearing Apart, Cracking, Burning, Bulging
Dwelling Policy 3 (DP3): Comprehensive Coverage
This is the most common type of landlord insurance policy. DP-1 and DP-2 both name specific perils and deny claims resulting from any cause that is not explicitly listed as a covered peril.
DP-2 policies can include loss of income coverage. If tenants must move out because of covered damage and the landlord stops earning rent, the policy can pay the landlord for the lost rent until the repairs are completed. On the other hand, DP-3 is an “open peril” or “all-risk” policy and provides the broadest protection.
What are the top Landlord insurance companies?
Insurance is a highly competitive business. There are many companies that offer landlord insurance and many of them are great companies.
One thing to keep in mind is that each company has its own policies and coverage. Generally, each landlord situation is different so not every landlord insurance company is suitable for one’s needs. Here is a list of the top six:
- Country Financial: Has excellent overall customer satisfaction
- The Hartford: Has excellent property claims satisfaction
- Liberty Mutual: Really good for bundling discounts
- Foremost: Best for fixer-upper properties
- State Farm: Best for retail a retail presence
- Steadily: Best landlord insurance for a wide range of properties
How to Get the Right Landlord Insurance
Choosing the right landlord insurance can sometimes be difficult. As we eluded to before, not every situation is the same. Therefore, it is smart to do your due diligence before getting landlord insurance. Here is a list of steps to take to get landlord insurance:
Step 1: Determine What Type of Insurance You Are Eligible For
This will depend on whether you are just renting out a room at the property you occupy or if you’re renting out a property that you do not occupy or live at.
If you are unsure if you need landlord insurance then read this. It will provide you with deeper insight.
Step 2: Check Out What Your Local Agent Options Are
You can purchase a policy online through us, Steadily, or you will need to find an insurance agent that can find an insurance carrier that suits your needs.
Step 3: Discuss your Property and Coverage Needs
Remember to have all your basic property information prepared when you sign up for landlord insurance. Before telling the agent your exact needs. If you are unsure of your needs then refer to this article.
Step 4: Wait
After you have contacted the agent, you will need to wait for them to contact insurance carriers who will then generate your landlord insurance quote.
Step 5: Review, Sign, and Purchase a Policy
After you have received your quote then choose the most suitable carrier.
How do Homeowners and Landlord Insurance Policies Differ?
DP-3 landlord policies and homeowners policies provide similar base coverage:
- Building: Covers the structure itself
- Liability Insurance: Covers bodily and personal injury to someone else or damage to their property
- Loss of use/Loss of rental income: Covers extra costs of living if you’re forced out of your home or replaces rental income if tenants are forced out by a loss
- Personal property: Covers items in and around the home
- Medical payments: Covers medical costs if a guest or tenant is injured on the property
- Other structures: Covers unattached structures like sheds, garages, or swimming pool fences
Where homeowners and landlord policies differ, the most is on the amount of personal property coverage. A homeowners policy will typically cover up to 50% of the home’s insured value. A landlord policy will typically not offer any personal property coverage unless an additional premium is paid to cover appliances and furnishings.
Please note landlord insurance personal property coverage does not protect the tenants’ property. They’d need a renters insurance policy for that.
Also, the homeowner’s liability covers you for personal liability that’s non-business related. The landlord’s liability coverage only applies to losses related to the rental (insurers sometimes refer to this as premises liability). You would need separate business insurance for general liability protection.
(If you have a homeowners policy then see Equipment Breakdown Coverage Form)
Landlord insurance costs about 25% more than a standard homeowners insurance policy would cost on the same property. Why does it cost more? Renters historically have a higher probability than homeowners of causing damage to a property that results in a claim, so insurance underwriters have adjusted the premiums to match the increased risk.
A few years ago, the average homeowner reported paying $1,192 for their policy, and the average landlord paid $1,478. The cost of landlord insurance also differs whether it is a long-term or a short-term rental.
The average cost of a long-term landlord insurance policy nationwide is $1,070
The average cost of a short-term rental insurance policy nationwide is $1,377
The cost of insurance is dependent on a number of factors, including: geo-location, property condition, replacement cost, etc. The chart below shows the median cost of a landlord insurance policy by State.
Related: Landlord Insurance Cost by State
More About Landlord Insurance Costs
One of the most common questions asked is “Can I deduct it on my taxes?“
Yes! You are permitted to make a tax deduction for the entire landlord insurance premium for your rental property. The IRS considers this a normal business expense when renting out real estate.
Depending on the state of your property, the occupancy of it, and the location, you may add some additional coverage to ensure your landlord insurance covers as much as it can. Below are some common coverage options we provide:
- Burglary: Most landlord insurance policies will pay for any damage that occurs to the home during a break-in, such as broken windows, but will not cover the expenses of your stolen personal property. This coverage will cover the cost for stolen items used to maintain your property, such as a lawnmower. It’s important to note that burglary coverage will not protect a tenant’s personal belongings. For that, they’ll need renters insurance.
- Vandalism: Vandalism is considered any intentional damage to your property by a tenant or other person. For example, if a tenant intentionally spray-paints the side of the house, your landlord insurance will consider this to be a covered loss if you’ve added vandalism coverage.
- Under Construction Rental Property: If you are renovating your unoccupied rental units or building entirely new ones, you can buy additional coverage to protect the properties until they’re occupied. (If you aren’t a landlord: for contractors see Builders Risk Form and for homeowners see Dwelling Under Construction Endorsement)
- Building Codes: Occasionally, you must repair or replace parts of your rental. City and county codes may require you to upgrade items such as wiring because the regulations have changed since your property was built. This type of coverage will protect against the costs you may incur from this.
Note: Flood insurance would require a separate policy.
Can I Get Landlord Insurance on a Mortgaged Property?
The short answer is yes you can. You can rent out your house and get landlord insurance and keep your original home mortgage unchanged. Only if you have met your mortgage lender’s 12-month residency requirement.
When Should I Be Hiring a Lawyer to Represent Me as Landlord?
Though we are not legal experts if you are experiencing troubles with your tenants in regards to your property then it may be wise to get a lawyer. Here are the common situations that usually require hiring a lawyer:
- Tenants not paying
- If you need to change your business structure
- You need to create a lease agreement
- You need defense against an illness or injury claim
- Defending against a tenant property damage claim
- Dispute over a security deposit
- You suspect illegal activity
Here are more resources on when you should hire a lawyer as a landlord.
We hope that this landlord insurance guide helped you wrap your head around the basics. Do you have any additional questions about what types of optional coverage may be right for you? Talk with one of our insurance agents and get a quote today! Also, if you already have an insurance policy the easiest method to see your policies terms are by checking your declarations page.
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