You Need Landlord Insurance Webinar

Christa Ruther: My name is Christa Ruther, I am the senior content marketing writer here at TurboTenant, and I am joined today by the incomparable Adam Swearingen. Adam is the Senior Vice President of Growth and Partnerships at Steadily, so an important guy — we're very lucky to have him in the mix.

Adam Swearingen: Thanks for having me, Krista. It's an honor. We love TurboTenant, it's a great partner of ours, and we're really excited to share with you guys everything we're doing at Steadily — but more importantly to help educate on landlord insurance. Thanks for having me, excited to be here.

Christa: Wonderful. Just a couple notes before we start: we are going to record this webinar and send it out after the session ends, so keep your eyes peeled for an email with that information. Also feel free to ask questions in the chat or through the Q&A section — we will answer all of those questions at the end of our presentation, so do be sure you stick around.

Alright, so first off — most important — what is landlord insurance? Landlord insurance is also known as rental property insurance, and it basically protects you as a landlord when you are renting out your property to others. It's different than homeowners insurance, and we will make sure you know that by the end of today. Homeowners insurance only applies if you live in the property. Landlord insurance only applies if you do not live in the property.

Landlord insurance and renters insurance in conjunction is a winning combination that covers you on all fronts, and we will dig into that as well. Since many people get confused about the types of insurance they need, we will go over landlord insurance, renters insurance, homeowners insurance, and then talk more about what landlord insurance covers. Landlord insurance is paid for by you as the landlord — very important to note. As long as you have that and renters insurance from your renter, you should be in a good spot to sleep well at night.

So what is renters insurance? Renters insurance is — as you might have guessed — insurance that your renter pays for, and it protects their items. It protects them against things like accidents and natural disasters. If a tornado sweeps through town and destroys their things, they can get reimbursed. It also covers malicious actions and litigation against the renter. So let's say somebody comes onto the property — one of their guests — and falls and breaks their leg. If that person tried to sue your renter, their renters insurance would cover some of that cost. It also covers additional living expenses, so if the dwelling was uninhabitable, it would allow them to pay for a hotel room or somewhere to stay.

The tenant pays for renters insurance, but you as a landlord benefit as well — mostly because when your renters don't have renters insurance, their first inclination may be to come to you and ask for help when something goes wrong. As a good landlord you want to help them, but if they have renters insurance they can go through the proper channels and get reimbursed that way rather than leaning on you first. It also helps reduce legal issues, since renters insurance can cover both legal fees and medical bills if someone gets injured on site.

We do have a poll for you about renters insurance — what percentage of tenants do you think have renters insurance? Not all landlords require renters insurance, but we do highly recommend that if you're not currently requiring it, give it a shot. We do offer some renters insurance through TurboTenant if you are interested.

Okay, let's look at those results. Most of you think that 10% or less have renters insurance — which is fascinating — but the answer is actually 37%. As of this year, 37% of tenants have renters insurance.

Adam: What this poll is telling us, Krista, is that we recognize more tenants need to get insurance. Something you hit on is incredibly important and a good first step, which is trying to require some form of renters insurance. Getting that language in your lease is a really good first step. Let me give an example that will help give some color around how it can complement a landlord policy and why it's important — giving examples when it comes to insurance is usually the thing that helps it click.

So let's say you have a rental home and there's an electrical shortage that causes a fire. Firefighters come, they put it out — spraying a lot of water through the hose — but in doing so it's going to waterlog all of the renter's belongings. Let's say Susie is the renter. Susie's furniture is now waterlogged, her clothes smell like soot, and unfortunately Susie doesn't have a renters policy and wants to hold you the landlord responsible for the electrical fire. She's coming to you asking you to pay her $30,000 for new furniture reimbursement, plus $5,000 for the Airbnb she had to stay in for six weeks while the home was being repaired. Unfortunately, your landlord policy does not cover her personal property. If she had a policy, she'd be able to submit a claim, it would be taken care of through her policy, and you wouldn't have to touch it.

Now let's fast forward. You finally get the property inhabitable and Susie can move back in. She's excited, she throws a housewarming party, and a guest breaks their leg — very common unfortunately. Her guest breaks her femur in two places, and even more unfortunately, her guest turns out to be a professional dancer in the Kansas City Ballet. A professional dancer with a broken leg — not exactly a good combination. Her friend sues Susie for $100K in medical expenses and lost income. Normally Susie's renters policy would cover the liability and step in, but since she's not carrying renters insurance, there's no money to be had. So guess who her friend's savvy lawyer is going to turn to? You, the landlord — somebody with deeper pockets than Susie.

After all the stress of that lawsuit, Susie decides to light an aromatherapy candle to de-stress, then runs out to Starbucks to grab a frappuccino and forgets to blow it out. When she comes back, half the house is up in flames. Her renters policy should have covered the liability for the accidental damages, but since she doesn't have a policy, you get stuck having to use your insurance policy — which can drive up your deductible and increase your rates. These kinds of examples are things that actually happen. It's important to have levels of coverage to protect everybody — it's important for Susie, it's important for you. Accidents happen and that's what we're preparing for.

Christa: Absolutely — great and tragic examples. That is why it's important to have both landlord insurance and renters insurance. But let's talk about homeowners insurance — that's another important piece of the puzzle, although not one that's going to pertain to you much as a landlord. A standard homeowners insurance policy covers the building and personal property damage as well as liability, but it only applies if you live in that dwelling. If it's your primary dwelling you need homeowners insurance; if it's your rental unit you need landlord insurance. They cover similar things, but if you're renting the dwelling, you need landlord insurance.

Adam: To jump in here — there are a lot of landlords and investors that have homeowners policies, and a lot of it we find is because they just don't know they were supposed to switch over to a landlord policy. Maybe they didn't intend to rent the home out — it just kind of happened overnight and they took advantage of an opportunity to turn it into a rental. What we find often is that landlords can get by with a homeowners policy if the insurance company doesn't know they're renting it out, but as soon as they start investigating a first claim and find out the property is being rented out, they're going to deny the claim and cancel the policy. That's definitely a situation you don't want to be in.

Christa: Absolutely. So the purpose of landlord insurance — a landlord insurance policy covers the same things that a general homeowner's insurance policy covers, in addition to a couple of other specific things you'd need as a landlord. Can't stress this enough: landlord pays for landlord insurance, tenant pays for renters insurance because that protects their belongings, and homeowner's insurance is paid for by the homeowner but only if you live in that dwelling. That is the trifecta of insurance regarding properties.

Adam: One thing I'll add here — if you're renting out part of your main home, say you live in the home and you're renting part of it out to a tenant, you need landlord insurance and your tenant needs renters insurance. There are some homeowners policies that may have a home share exclusion. Just because you're living in the home and renting a portion out, you might not necessarily be covered. You'll hear us say this quite often today: check with your agent before renting out a room to ensure you're fully covered. There might be exceptions and exclusions that you don't know about, and you don't want to find out about them when you actually need them.

Christa: Absolutely — yes. When in doubt, check in with your agent. Now that we've told you why landlord insurance is important, let's talk about the benefits it offers. The main benefit of having landlord insurance is that you will have fewer out-of-pocket costs, which means not only is your bottom line bolstered but you have better peace of mind. Additionally, liability protection protects you from legal or medical fees in the case that a tenant or their guests are injured on your property. Tenants can sue for a payout or for coverage of medical expenses related to everything from physical injury and death to financial difficulty and emotional harm. With liability coverage, any possible expenses related to legal or medical fees will be covered.

You can also get rental income protection, which shields you in case something happens to your property that makes it uninhabitable — a fire, mold, tornado damage. This would be a huge financial loss, but rental income protection can cover you by giving you back some of the income you would have otherwise lost. Usually the coverage will only extend up to a defined period of time, such as 12 months, so when you're purchasing a policy always make sure you check in with your agent to understand what that coverage includes. We highly recommend making sure rental income protection is in the mix.

Lastly, there is certain tenant damage coverage. There are two types of damage that can be caused by a tenant: accidental and malicious or intentional damage. Some policies include malicious damage caused by the tenant, so ask your agent to confirm whether your policy includes that as well. Remember that insurance policies aren't designed to cover normal wear and tear — it doesn't mean you'll be able to submit a claim to install new carpet and repaint every time someone moves out.

Getting even deeper into it — what does landlord insurance cover? A good comprehensive policy will include three key protections. First, property damage protection, which covers any damage to the property caused by a natural disaster, vandalism, theft, irresponsible tenants, or other things that could damage the physical structure. Not all policies are created equal — some basic policies only cover the perils that are named, like fire, lightning, smoke, and hail. Other policies are broader and cover everything unless it's specifically listed as an exclusion. Virtually every policy these days also includes a COVID-related exclusion.

Second, loss of rental income protection. Should something occur that causes your property to be uninhabitable, this provides temporary rental income reimbursement that acts as a replacement for the rent you would be receiving. One thing to note: you can't charge the insurance company more than what you would have had the renter pay. If your monthly rent is $500, you cannot go to Steadily and say pay me $1,000 a month instead — you're only getting a one-to-one reimbursement.

Third, liability coverage, which covers any medical or legal fees such as lawsuits, bodily injury claims, and settlement costs if a tenant or visitor is injured on your premises. There are of course additional coverage options you may want to pursue. Flood insurance covers any damage caused by a flood, but it's important to note that flood insurance is almost always excluded from the general policy — it's something you need to add on separately, though it can usually be purchased through your same agent. Guaranteed income insurance, also known as rent guarantee, covers partial or full rent payments if the tenant is unable to pay — this is always a separate policy, separate from the loss of rental income coverage. Personal property coverage protects your furnishings if you're renting out a furnished unit — this is usually available in every landlord policy, you just have to increase the limit high enough to cover your specific furniture. If you don't have a furnished unit, you can still carry a small amount of personal property coverage for appliances and other items you might be keeping at the home.

What doesn't landlord insurance cover? It will not protect your tenant's belongings — which is why requiring renters insurance is such a good idea. It will not protect against normal wear and tear, meaning damage or deterioration resulting from ordinary use. And property in which the homeowner lives is not covered under landlord insurance if they're not renting out any portion of it — that falls under homeowners insurance.

And now for a deeper dive into the different types of landlord insurance — Adam, you can take it away.

Adam: Thanks, Krista. We're getting lots of questions on some of the stuff we've covered — we're going to have a Q&A at the end and we'll get to as many questions as possible, and if we can't get to them all we're going to circle back and answer everybody's questions.

So as Krista said, we've thrown a lot at you. At a high level you've got an understanding of the different types of insurance policies — homeowners, landlord, and renters. Now I'm going to take a deeper dive into the different types of landlord policies. As with any insurance, the coverage you receive is going to depend on the type of policy you select. Landlord insurance is commonly referred to as dwelling policies, and the three different categories these dwelling policies fall into are DP1, DP2, and DP3.

The first one, DP1, is the most basic policy that covers common occurrences. These only cover named perils — the most common ones. DP1 claims that are covered will only be reimbursed for actual cash value, which is a big differentiator versus DP2 and DP3. Actual cash value means that the claim is going to have depreciation built in. For example — I'll give you a roof example — let's say a hailstorm takes out your whole roof. This literally hits home with me since I'm personally going through this right now here in the Dallas area. It's going to cost $20,000 to replace the roof. Under actual cash value like a DP1 policy, it's going to take into account that your roof is already 10 years old, depreciate it in half, and all you get is $10,000 — which isn't enough to cover the full $20,000. DP1 tends to be the cheapest option. It's not necessarily a bad option if you're the type of landlord who's going to make repairs yourself or just wants to get their money back from an investment and doesn't plan to rebuild. Where it can be a problem is with partial losses.

Next, DP2. DP2 covers certain named perils in addition to the DP1 common perils, and also protects against other things like burglary damage, frozen pipes, falling objects, and loss of income. The biggest differentiator between DP1 and DP2 is that with DP2 you're getting paid out on replacement cost value, meaning the policy will pay to restore the dwelling to its original condition. In the previous roof example, instead of receiving $10,000 due to depreciation, you'd actually receive the full $20,000 to replace the roof — obviously less your deductible. One type of coverage that is often included in DP2 is loss of rents coverage, which provides you with continuing rental income while the home is being repaired due to a covered peril. Without loss of rent coverage, if your rental property gets damaged to the point where your renter has to move out while repairs happen, you'll never collect the rent from those months.

Last but not least, DP3. DP3 is the broadest form of protection and because of that it's the most common and comprehensive landlord insurance policy. This type of dwelling fire insurance operates as an open peril policy, which means all perils are covered unless they're specifically detailed as exclusions within your policy agreement. DP3 policies can protect the structure of your home, fair rental value, and usually personal liability, subject to your agreement. Just like DP1 and DP2, they do not cover the contents of your home. Here at Steadily we write a lot of DP1 and DP3 and a few DP2, but all the options have their purpose — it's really about your investment philosophy and your risk tolerance. Talk to your agent to work through the options.

The most common question we get is how much does landlord insurance cost. According to the Insurance Information Institute, landlord insurance costs roughly about 25% more than your typical homeowner's insurance policy. If the average premium for a homeowner's policy is around $1,200, we can calculate that a landlord insurance premium should cost roughly $1,500. It's all going to depend on the type of coverage and the insurance company you go with. A house in California will probably cost more than the average because it's worth more and there are wildfires and other natural perils that come into play. The more comprehensive your coverage, the more expensive the policy is going to be.

We have arrived at our second poll of the webinar — out of the options below, which state do you think offers the cheapest landlord insurance? Also important to note: landlord insurance is tax deductible since it's considered a normal business expense, so make sure you're tracking your receipts and have something to turn over to your accountant at the end of the year.

Alright, so you guys are thinking Idaho has the cheapest landlord insurance — not a bad guess, they're full of potatoes, why not have a lower insurance premium? But the answer is actually Delaware, at only an average of $976. Compare that to Colorado, my home state, which boasts the most expensive landlord insurance costs at an average of $4,228. Guess I will be eating ramen for lunch.

The next most common question, quickly followed by how much does it cost, is how do you reduce the cost. First and foremost: property maintenance. Insurance companies are very risk-averse, which means you've got to keep the property up to code. Have a maintenance routine that's followed regularly, ensure your sidewalks are well maintained, regularly check fire escapes, smoke detectors, and carbon monoxide detectors, maintain clean walkways and well-lit hallways.

When it comes to the deductible, raising the deductible makes insurance companies more apt to lower your cost since they know you'll pick up more of the tab, thus preventing unreasonable claims. You can play around with different deductible options to see how that impacts your premiums. Emphasizing the safety measures you've taken also adds value to your building profile — highlight security cameras, efficient lighting systems, alarms, and smoke detectors, and you may receive a discounted rate. Share all of that with your agent. Many insurance companies will also give a discount if you pay in full instead of monthly installments, and they might offer a discount if you use a property manager or are a member of a property management association.

In closing — we've gone over quite a bit and hopefully this has helped you become more knowledgeable on landlord insurance. This is meant to be surface-level information to give you enough to pick the right policy for your property. Be sure you do your due diligence, but most importantly ask a lot of questions. Our agents at Steadily are very experienced and love getting good questions. Some questions to ask your agent: Are there additional coverages I should add on given my location? Does my policy cover both short and long-term rentals? How is the replacement cost or cash value calculated under this policy? Are there upgrades or repairs I can do to this property to reduce my insurance costs? And always ask: what is NOT included in my landlord insurance? A lot of folks ask what is included but forget to ask what's not.

Also worth noting — we talked a lot today about the basics of landlord insurance for traditional rentals. We didn't get into special investments like fix-and-flips, where you're doing renovation on older properties and potentially selling them in a short amount of time. Those can be covered as well — it's just a different type of policy. Make sure you communicate with your agent. Adequate insurance coverage can make or break your real estate investing business, so get quotes, speak with experts, and conduct your own due diligence so you can go to sleep at night knowing that no matter what happens, you and your business can recover.

Christa: Absolutely. Just to build off what Adam said — if you're in the market for landlord insurance, our partners over at Steadily can help you out. I'll go ahead and drop the link in the chat. And I believe we have Andrew Kim from the Steadily team on the line who can take on some of these questions. Andrew, if you're available to come off mute, that'd be great.

Andrew Kim: Sure, yeah. So Susan asked earlier if an umbrella policy will cover the needs. Basically, an umbrella policy will provide excess liability coverage over the underlying policies — in this case, the landlord insurance. For example, if your underlying landlord insurance policy has $500,000 of liability coverage, you could get an umbrella policy to provide excess liability over that $500,000, up to $1 million, $2 million, $3 million — there are plenty of options. Depending on how many properties you own and how much liability you feel exposed to, you can absolutely purchase additional excess liability coverage. In the event of a lawsuit, the umbrella liability would kick in after the underlying limits have been met.

There's also another option where you can exclude liability from the landlord insurance policy and then get a general liability policy — a general $1 million or $2 million or whatever limit you choose — over that property. So there are a couple of different ways to get liability and excess liability coverage on your investment properties.

Susan Payne asked: what if your rental is a cottage in your backyard on your property but a separate dwelling — an ADU — what is needed? That's a fantastic question and it's going to vary based on the company you're getting quotes from. There are some companies that offer primary homeowners insurance policies with a home sharing endorsement, which allows you to have your primary residence policy for the home you live in and also states that you will be renting out portions of your home or a separate structure on either a short-term or long-term rental basis. As long as your carrier, company, and agent are aware of how the property is being used, they should be able to guide you into the proper policy.

Stephen asked: how can you mandate a tenant purchases and maintains a renters insurance policy if you have it in the lease? If the policy cancels, a landlord really doesn't have much legal recourse — he's never seen an eviction court throw out a tenant because they didn't have tenant insurance per the lease. That's a great point. When we as insurance agents remind our landlord and investor partners to require their tenants to have rental insurance, it's mostly for liability protection for yourself as the property owner. Owning the property itself opens you up to a lot of liabilities whether you have it in an LLC or not. Those examples Adam shared are real-life scenarios that happen on a daily basis — we're really focusing on protecting your pockets and your investment properties so that if it does burn down because of a tenant accident, you would at least get some payments back instead of being out of pocket for all costs.

Carson asks: does landlord insurance have additional coverage for rent default? There is a product called rent guarantee that offers coverage for exactly that — if the tenant defaults on rent and isn't able to pay. We're actually in the process of building that product within our agency so we can offer it shortly if it's not already available.

Teresasaurus Rex — great name — asks: what does an umbrella insurance policy cover that a landlord policy does not? The umbrella policy is designed to provide excess liability coverage over the landlord policy. It's not necessarily something that covers damage or something the landlord policy doesn't cover — it's meant to work coupled to your property policy. For example, if you have a tenant pass away in one of your properties and their family sues you, they're obviously going to sue for more than a million dollars. If you only have $300,000 of liability coverage on your underlying policy, you'll be responsible for the remaining costs out of pocket. But with the umbrella, after those $300,000 limits have been met, the additional million or two million you purchased will kick in up to your limits.

Vanessa Peake asks: what type of policies are available while in the process of rehabbing a house to be rented in the near future? Fantastic question. When it comes to rehabbing a house, in most cases it's going to come down to the scope of work. The three main points companies usually look at to differentiate between major and minor renovations are: are they changing square footage or the foundation? Are they adding or removing any load-bearing walls? And are they adding any rooms? If the answer is yes to any of those, they will more than likely be considered major renovations, which would either require a vacant under renovations with builders risk endorsement or a traditional builder's risk policy. For minor renovations — interior cosmetic work, changing out flooring, replacing the roof, changing out windows — those can usually fall under what's called vacant under renovations for minor. Those policies tend to be a little lighter on premiums but very similar to a builder's risk. Again, depending on the scope of work, there should be a product available as long as you disclose all the details to your agent.

Andrew asks: my tenant put holes all over the walls hanging pictures — is that deductible against insurance or the security deposit? It depends on what kind of coverage you have on the policy. If you have vandalism and malicious mischief coverage, it could possibly be covered. In every claim scenario it's going to come down to the claims adjuster and what's found at the time of loss. What I usually advise investors is to weigh the cost to repair against how much the deductible is — because if your deductible is higher than the cost to repair the damages, all you'll be doing is filing a claim and getting a closed claim with a zero payout. Now you have a loss history on your claim with no payout, and that could possibly increase your premiums. Always call your agent before calling the insurance company.

Adam: I'll also jump in here — if we're talking about hung pictures and holes, that's different than a tenant punching a hole in the wall. If this is during the move-out process, that's the opportunity to look at your lease language and see what the tenant is required to do to bring the property back to the state it was at move-in. Otherwise it comes out of the security deposit — that's the better way of handling it, because filing a claim against your insurance could drive up your premium and your costs.

Andrew: Absolutely. Even a zero-paid claim could possibly increase your premiums — your agent should be able to discuss your claims options with you.

Adam also wanted to revisit the question about mandating renters insurance. From a landlord's perspective — and it's important to seek proper legal advice — what I have seen work is having it be a requirement at move-in, meaning it's in your lease that in order to get keys you must provide proof of renters insurance. From there, being listed as additional interest helps because you get notifications if there are changes to that policy. That said, there are holes — some insurance companies may not always send those notifications. Adding extra steps like requiring them to provide proof every quarter or every six months, with failure to do so being a lease violation, is an important additional measure. With Steadily as a partner, the talking point could be: "In order to rent this property you must have an insurance policy covering accidental damage. You can either provide proof at move-in and every three months, or you can go through Steadily, who has competitive rates and will list us as additional insureds so it'll meet your requirements." Happy to take that offline and discuss individually.

Albert asks: as a landlord, can I buy and pay for my tenant's liability insurance? It is state-specific, and as far as I'm aware on the sales side as agents we cannot pay for the policies, but I haven't necessarily heard anything prohibiting property owners from doing so. I would absolutely recommend seeking legal advice on that.

Andrew also asked: how does price depend on square footage? Whenever we run a replacement cost estimator to determine what values would be required to rebuild that same property, every company uses their own calculator but it usually depends on the square footage, the finish on the materials, the type of frame construction, and the foundation. Price is going to vary wildly depending on the state and location. In Colorado I've seen reconstruction cost averages of roughly $400–$500 per square foot, whereas here in Texas I've seen averages of $100–$120 per square foot. It's also going to vary depending on the risk, what kind of disasters have hit in the past, and the finishes — plastic laminate countertops obviously won't be as high as imported marble from Italy.

Betty J asked: if I own a four-unit building and I live in one unit, do I need a homeowners policy for my apartment and a landlord policy for each of the other three? In that situation, what I would highly recommend is finding a company that has a home share endorsement program. That would allow you to list it as a quad-plex, state that you primarily reside in one unit and rent out the other three on either a long-term or short-term basis. Your agent and company, if aware of the situation, should be able to match you with a policy that fits that description. We at Steadily have multiple carriers that offer solutions for that. Having the wrong type of policy for your investment could be very detrimental — if you have a homeowners policy on a property you're renting out, it could be considered misrepresentation on the application and the company has the right to deny any claims because it is tenant-occupied, not owner-occupied as listed. Having the right type of policy is very important.

Christa: Thank you. We are pretty close to time here, so thank you for all of these great questions. If you have anything else or if there are questions we didn't get to, please follow that link I dropped in the chat — that will get you to Steadily. They are one of the best companies you can go to for landlord insurance. It's what they do, and most of their agents have five-plus years of experience. Once this session concludes you will see a brief survey — it'll let you choose the next topic for our webinar and ask a couple of questions about how this went. We will also send an email with the link to this recording along with the questions Adam suggested asking your insurance agent. Thank you all so much for being here — we've really enjoyed talking with you about landlord insurance. Go to Steadily to get more coverage and make sure you are ready to go.

Adam: Thanks for having us. That link Krista shared says "get a quote," but if you put in your information it's going to connect you to an agent — so you don't necessarily have to worry about "I don't want a quote" or "I'm not really looking for that." Just go through the process, you'll get connected with an agent like Andrew who can really help you and answer any questions you have.

Christa: Fantastic. Thank you everyone — have a great day!