Is Landlord Insurance a Substitute for Homeowners Insurance?

Due to the restrictions on what makes a home eligible for homeowners insurance vs what makes it eligible landlord insurance, you would generally not be able to ever have both at the same time. The catch is that, due to the higher risk that rental properties have, the insurance coverage you receive with a standard landlord insurance policy is less broad than homeowners insurance.

Both types of insurance will provide liability coverage for the policyholder, and both will cover property damage. The basic levels of landlord insurance (often referred to as Dwelling Fire Form 1 (DP-1 Policy) and Dwelling Fire Form 2 (DP-2 Policy) cover less than the most common type of homeowners insurance, but if you opt for the highest level of protection by purchasing a Dwelling Fire Form 3 (DP-3 Policy), the coverage is very similar to homeowners insurance at that point.

Here are some of the key differences:

Occupied Property

You’re only eligible for homeowners insurance if you use that property as your primary residence. Similarly, you are generally only eligible for landlord insurance if you primarily rent the property to other individuals. The best way to determine which type of insurance you’re eligible for would be to discuss with your current insurance company.

Personal Property Coverage

Homeowners insurance covers damage to your personal property in the home. In the event of a break-in, your personal belongings would be covered and your homeowner’s insurance would pay for the replacement cost of those items. Most landlord insurance policies do not consider the personal property a covered loss unless it is for an item used to maintain the property.

Good to Know: In insurance terminology, there are two terms used frequently, replacement costs and functional replacement costs. Functional replacement is when the insurance company will replace a damaged item with another item that is lower in value but has the same function. (If you have a homeowners policy then see Equipment Breakdown Coverage Form)

Liability Coverage

Landlord insurance will only provide liability protection when it’s related to the rental property. For example, if a tenant is injured on the property and sues you for damages, your landlord insurance will cover the legal fees and potential medical expenses. Homeowners’ insurance policies will provide liability coverage for you and other household members, even if the accident does not occur in your home.

Rental Income Protection

Many insurance companies allow you to add additional coverage to your landlord insurance policy to protect against the loss of rental income in the event that your rental property is made uninhabitable or a tenant unexpectedly moves out. Homeowners insurance policies do not provide

Landlord Insurance Cost

Because of the additional risk associated with renting out a property, landlord insurance tends to be 15%-20% more expensive than homeowners insurance.