Learning about landlord insurance for the first time or just looking to brush up on the basics? We have you covered with our comprehensive 2020 landlord insurance guide to all things landlord insurance-related.
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.
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.
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 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.
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.
DP-3 landlord policies and homeowners policies provide similar base coverages:
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 homeowners 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.
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.
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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