Is Landlord Insurance Right for Me?

If you own a rental property that is not your primary residence, then you need landlord insurance. In many cases, this also includes homes used as frequent short-term rentals, although Airbnb rentals may be covered with home insurance policy add-ons and additional coverage options provided through Airbnb.

Like homeowners insurance, a landlord insurance policy is meant to cover damage to the building itself as well as injuries to tenants and their guests. It’s important to secure the proper type of insurance policy for the way you’ll use the property, however. A standard homeowners insurance policy may leave you without coverage if you have a loss.

When is landlord insurance required?

If you have a mortgage on the rental property, your lender will probably require you to get insurance coverage for the home. This ensures that if the building is damaged or destroyed there will be enough insurance to cover the cost of repairs or rebuilding.

Who does “not” need landlord insurance?‍

Some landlords choose to go without rental property insurance, just like some people choose not to get a homeowners insurance policy.

If you can answer “yes” to each of these questions and do not have a loan for the property, then you may not need insurance:

  • Can you afford to rebuild the property if it were completely destroyed?
  • Can you afford to settle a lawsuit if a tenant is badly injured and sues you?
  • Can you afford to go without rental income for as long as it takes to repair the building?

The choice of whether to insure your property isn’t as binary as it may seem, though. Many property owners choose to insure while also choosing higher deductibles or choosing lower coverage amounts for the building itself. Both strategies provide a way to self insure, in part, while also providing some protection against larger losses.

Discuss your coverage needs with a trusted insurance agent. A policy for an investment property offers more customization options. This structure gives you freedom to manage the cost of landlord insurance by choosing only the coverage you need.

What does landlord insurance cover?

The two most important protections that landlord insurance provides are property damage coverage for the building and liability coverage, which protects the landlord. Rental property policies can also insure personal belongings owned by you but stored at the property, such as tools, lawnmowers, or furnishings within rental units. Be aware that personal property coverage may be limited to items used to service or maintain the rental unit.

Personal property owned by your tenants is not covered by your landlord insurance policy, but a renters insurance policy offers an affordable way for tenants to insure their belongings while also providing basic personal liability protection for themselves. 

Property damage to the building and other structures

Your insurance company will pay to repair your rental property if it’s damaged for any of the reasons listed as covered losses. Common covered losses include:

  • Fire
  • Lightning
  • Explosion
  • Wind and hail
  • Freezing pipes
  • Overflowing water
  • Break-ins or vandalism
  • and several other less common reasons

You’ll also see covered losses referred to as covered perils. In an insurance context, a peril is a cause of loss. 

Some policies, called all-risk policies, cover all perils except for those specifically excluded in the policy. Typically, exclusions include losses caused intentionally by the owner, caused by neglected maintenance, or caused by certain regional risks (like flooding or earthquakes).

The part of your policy that covers the building itself is called dwelling coverage and extends to items attached to the rental home, such as countertops, sinks, etc. Your policy also provides coverage for other structures, which might include detached garages, fences, gazebos, and structures.

Liability Insurance Coverage

As another key feature of a landlord insurance policy, you’ll benefit from enhanced liability coverage options when compared to a standard home insurance policy. Coverage choices may vary by insurer, with some insurance packages offering additional coverage for liability risks landlords face, such as claims related to invasion of privacy or wrongful eviction. 

Liability coverage on a landlord insurance policy typically pays legal fees tied to covered claims as well, often saving thousands of dollars even if no liability is found.

In addition to property and liability coverage, many rental property insurance policies offer extras like coverage for loss of rental income. If a covered claim results in lost rental income, your policy can help. 

Does landlord insurance include flood insurance and earthquake insurance?

Today’s landlord policies offer wide-ranging protection, but some risks aren’t covered by a standard policy. You’ll find both floods and earthquakes excluded from coverage on standard policies, although the latter is often grouped with other types of land movement, such as sinkholes. 

According to the Insurance Information Institute, 90 percent of natural disasters in the US involve some type of flooding. Losses due to flooding or earthquakes can be widespread, affecting hundreds or even thousands of properties, but are also often limited to certain areas. Property owners in other areas may not have any meaningful risk. Due in part to this reason, insurers exclude coverage for these perils on standard policies. This policy structure helps keep coverage more affordable for those who don’t have the same regional risks.

Instead, these coverages are sold as separate insurance policies from different insurance companies or government entities. For example, FEMA is the largest provider for flood insurance through its National Flood Insurance Program (NFIP). However, with better risk prediction models made available through artificial intelligence, a growing number of private insurers now offer flood insurance. 

Similarly, earthquake insurance is usually sold as a separate policy. However, some landlord insurance policies offer coverage for other types of land movement through policy add-ons. In California, earthquake coverage is available through the California Earthquake Authority.

Lenders often require flood insurance for properties located in a special flood hazard area.

Choosing the right rental property insurance

In many cases, you’ll only need one insurance policy to cover many of the risks you might face as an investment property owner. You can customize your landlord policy to address your largest concerns, or choose to accept a bit more risk to keep overall insurance costs lower. 

You chose your rental property carefully. Invest some time in choosing the right coverage as well. Compare insurance quotes, but also compare coverage options. The policy with the lowest premium may be cutting coverage in areas where you need more protection. Instead, review each part of your policy to make better coverage decisions. This way, your policy focuses on areas where you need protection most.

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