Learning about landlord insurance for the first time or just looking to brush up on the basics? We have you covered with our comprehensive 2021 landlord insurance guide to all things landlord insurance-related.
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.
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.
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.
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.
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.
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.
Yes, it is still wise to have landlord insurance. We have a dedicated post just for this specific situation.
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.
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.
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
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.
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:
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:
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.
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.
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.
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.
After you have received your quote then choose the most suitable carrier.
DP-3 landlord policies and homeowners policies provide similar base coverage:
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.
A landlord insurance policy will typically cost 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.
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:
Note: Flood insurance would require a separate policy.
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.
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:
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!
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