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Landlord Insurance Explained: Protecting Your Investment Property

What Is Landlord Insurance? 

Landlord insurance is a type of property insurance designed to protect the financial interests of individuals who rent out their land, home, or other property to a third party or tenant — otherwise known as “landlords.” Landlord insurance reimburses these individuals for loss of rental income, structural damage resulting from covered perils, and tenant liability claims or lawsuits.

Though both landlord and homeowners insurance types protect against similar risks, landlord insurance only applies to rented properties, does not cover tenant-owned belongings, and only provides liability coverage for injuries sustained on the premises. Homeowners insurance, contrarily, can cover all personal property onsite and extends liability protection to certain damages you or your family might cause outside the household.

Your Financial Liability When Owning Property

While investing in real estate offers a viable means of generating income, owners become responsible for their properties and everything that happens inside them. Common financial risks landlords face include:

  • Lawsuits
  • Untimely investments 
  • Extended vacancies
  • Significant maintenance 
  • Illegal subleases
  • Tenant refusal to pay rent or acknowledge eviction
  • Economic crashes

How Does Landlord Insurance Work? 

Landlord insurance provides a buffer against the financial and legal perils of renting real estate. With comprehensive coverage, property owners receive protection and reimbursement for eligible damages, medical bills, and legal fees.

With this insurance, landlords pay premiums to keep their coverage active. If an incident occurs when the landlord needs to file a claim, the landlord must first meet their deductible before the policy starts to pay. Once the claim is approved, the insurance company will reimburse the landlord for the covered losses up to the policy limits, minus the deductible.

Who Needs Landlord Insurance? 

You should apply for landlord insurance if you currently or intend to utilize your property in any of the following ways:

  • You have a long-term renter. If you rent out a house, apartment, or portion of your home for more than six months, you will need a landlord rental insurance.
  • You have infrequent short-term renters. Those who only occasionally rent out parts of their home can often receive eligible coverage through their homeowners policy. However, certain companies may require them to secure landlord insurance.
  • You have frequent short-term renters. Property owners with a regular turnover of renters, such as Airbnb hosts, will not qualify for protection through traditional homeowners insurance and must seek a commercial landlord insurance policy.

Who Is Considered a Landlord? 

Any person or entity that owns real estate for rent or lease to a tenant qualifies as a landlord. Typically, landlords and tenants sign a lease agreement that specifies the rights and responsibilities of each party and legally binds them together. Even if you casually rent out a part of your home to a friend, you can face the same financial risks and obligations as commercial landlords.

What Does Landlord Insurance Cover? 

Landlord insurance primarily provides financial protection and reimbursement against loss of income, property damage, and liability.

For comprehensive security, property owners can customize their landlord policies through the following coverages:

  • Dwelling Coverage: Covers the home’s structure from specific perils like fires and falling objects
  • Other Structures Coverage: Reimburses damages to detached structures on rental properties such as garages, fences, and sheds
  • Liability Coverage: Helps pay for legal fees and medical bills levied by injured renters
  • Personal Property Coverage: Reimburses landlord-owned personal property such as security cameras and washing machines
  • Loss of Use Coverage: Reimburses lost income due to extended vacancies or from dwellings temporarily neutralized by a covered peril

Form Categories Associated With Landlord Insurance 

Once you select a “type” of insurance, such as homeowners or landlord insurance, you must fill out a form relative to the amount of coverage you desire. Form categories for landlord insurance policies include:

  • Dwelling Policy 1 (DP1)Very Limited Coverage – Named peril policy.
  • Dwelling Policy 2 (DP2)Moderate Coverage – Named peril policy at replacement cost value with occasional loss of income reimbursement.
  • Dwelling Policy 3 (DP3)Comprehensive Coverage – Open peril policy with loss of income protection.

What Does Landlord Insurance Not Cover? 

Landlord insurance only protects property owners against specific hazards. Standard policy exclusions include:

  • Equipment malfunctions: Though rental contracts often require the property owner to fix or replace broken appliances such as air conditioners, ovens, and water heaters, landlord insurance policies rarely cover these costs. Property owners must pay out of pocket for such repairs or purchase separate rental home warranties.
  • Shared property: Depending on your situation, you might not qualify for landlord insurance if you rent out space in your own home. Contact your carrier to confirm whether or not you must secure a separate rider on your homeowners policy.
  • Tenant belongings: Tenants are responsible for their personal property and will only see protection through standalone renters insurance policy.

What’s the Difference Between Homeowners, Landlords, and Renters Insurance? 

Home Insurance Form Categories
Named or Open Peril
Covered Perils (Structure)
Covered Perils (Possessions)
Exclusions
HO-1, or 10 Named Perils Insurance
Named
• Fire and lightning• Windstorms and hail• Explosions• Riots and civil commotions• Damage from an aircraft• Damage from a vehicle• Smoke• Vandalism and malicious mischief• Theft• Volcanoes
Same as covered perils for structure
All standard exclusions, plus:• Falling objects• Weight of snow, ice, or sleet• Water overflow from plumbing, HVAC,indoor sprinklers or water heater• Frozen plumbing, HVAC, sprinkler systemor appliances• Artificially generated electrical currents
HO-2, or 16 Named Perils Insurance
Named
Same as HO-1, plus:• Freezing• Falling objects• Weight of ice, snow, or sleet• Cracking, bulging• Artificially generated electric current• Water or stream
Same as covered perils for structure
All standard exclusions, plus water damage caused by sewer or drain backups
HO-3, or Standard Home Insurance
•Structure: Open•Possessions: Named
All except standard exclusions
Same as HO-2
All standard exclusions
HO-4, or Renter’s Insurance
Named
None
Same as HO-2
All standard exclusions
HO-5, or Open Perils Insurance
Open
All except standard exclusions
N/A
All standard exclusions
HO-6, or Condo Insurance
Named
None; covered by master condo insurance policy
Same as HO-2
All standard exclusions
HO-7, or Mobile Home Insurance
Structure: OpenPossession: Named
All except standard exclusions
Same as HO-2
All standard exclusions
HO-8, or Modified Coverage Home Insurance
Named
Same as HO-1
Same as covered perils for structure
All standard exclusions
DP1
Named
Same as HO-1
No automatic protection, personal property coverage required for landlord-owned equipment only (tenant possessions not covered)
Same as HO-1
DP2
Named
Same as HO-2 plus:-Glass breakage-Damage from burglary-Collapse
Same as DP1
Same as HO-2
DP3
Open
All except standard exclusions
Same as DP1
All standard exclusions

While homeowners, landlords, and renters insurance each protect against similar perils, they differ in the following ways:

  • Who they protect: Most significantly, each coverage applies to people with different relationships to the affected property.
  • What they protect: Whereas homeowners coverage can protect all structures within property limits and all personal belongings held within them, landlord renters insurance does not protect renters’ personal belongings. On the other hand, standalone renters insurance solely protects renters’ belongings.
  • Cost: Landlord insurance typically costs more than homeowners coverage, whereas renters insurance costs a mere fraction of a home insurance policy. 

How Much Does Landlord Insurance Cost 

Type of Coverage
Average Annual Premium
Landlords Insurance
$2012
Homeowners Insurance
$1610
Renters Insurance
$189

Landlord insurance costs about 25% more on average than a similar homeowners policy would on an identical property. Renters pose a higher likelihood than homeowners of causing property damage or exhibiting other behaviors that could result in an insurance claim, significantly factoring into the higher cost of landlord coverage.

In general, the cost of home, landlord, or renters insurance depends on a variety of factors, including:

  • Location
  • Property condition
  • Credit score
  • Replacement cost value
  • Rental and claims history
  • Chosen coverages

How To Get Landlord Insurance 

Because every real estate situation poses unique risks, newer landlords might need help settling on an appropriate insurance plan. When the time comes, simply follow these steps to select and secure your final policy.

1. Determine Which Type of Coverage You Need 

First and foremost, you must decide on a form category suited to your budget and coverage needs. If you are not worried about certain excluded perils, you might settle on a cheaper DP1 policy. Alternatively, DP2 policies cover more risks and reimburse losses at replacement value instead of actual cash value, making them ideal for property owners who can afford the slightly higher premium.

Most popular among landlords, however, DP3 policies offer comprehensive protection against all standard losses and potential liability claims. DP3 policies (and some DP2s) also account for the loss of rental income due to prolonged vacancies and negligent tenants. Considering the high risks of renting, DP3s make the most sense for any landlord seeking maximum financial security.

2. Shop Around For Quotes 

Once you select between coverages, compare quotes from at least three competing insurance carriers. Make sure to choose the same coverage types, limits, and deductibles for each tentative policy to reveal an accurate comparison. Most insurance companies offer instantaneous quotes for free through their online portals.

If you want to talk through your quote or have questions about coverage options, call a trusted insurance agent. Independent agents can help you organize and compare multiple quotes and explain each policy in detail. Once you find a coverage package that adequately protects you for a cost you can afford, move on to your application.

3. Fill Out an Application 

Standard landlord insurance applications will ask for personal information such as your name, social security number, location, and many documents related to property ownership. Gather everything from inspection reports, tenant leases, proof of ownership, certificates of occupancy, and previous insurance contracts to submit with your new application.

Once submitted, your insurer will use these details to decide your coverage eligibility and adjust your insurance rates accordingly. Landlords with a longer renting history and fewer claims appear less risky in the eyes of their insurers, who ultimately reward them with lower premiums.

4. Pay For the Policy and Receive Proof of Insurance 

Remember that even after you receive approval for your landlord policy, coverage will not begin until you make your first payment. Most companies will allow you to pay through their website or over the phone and will verify coverage immediately upon receipt. As soon as you pay your first bill, you shield yourself against liability claims, property damage, and potential loss of rental income.

Official documents proving your insurance status could take up to a week longer to show up in the mail, though many companies offer official printable variations online. Check with your insurance carrier to determine how to properly secure proof of coverage and safely begin renting your property.

Additional Coverage Options for Landlords 

If you have concerns over gaps in your coverage, you can typically fill them by purchasing optional policy riders. The most common supplemental riders affiliated with landlord insurance include:

  • Burglary: Covers the replacement cost of landlord-owned items such as refrigerators, washers, and lawn equipment lost during a break-in
  • Vandalism: Reimburses landlords for deliberate damage caused by graffiti, sabotage, or similar acts
  • Under construction rental property: Protects unoccupied units during renovations or initial construction
  • Building codes: Pays to help landlords bring old or damaged buildings up to city ordinance
  • HVAC reimbursement: Pays back landlords who have compensated tenants for broken ventilation systems like air conditioners or heaters
  • Non-occupied dwelling: Reimburses landlords for extended vacancies

Additional Protective Strategies for Landlords 

Furthermore, not all potential hazards see coverage under landlord or homeowners insurance.  For comprehensive protection, property owners should explore the following standalone options:

  • Earthquake coverage: Property owners in earthquake zones such as California or Washington must secure separate coverage to ensure protection.
  • Flood insurance: Whether or not you live in an official flood zone, surges can occur randomly and rarely see coverage under standard property insurance.
  • Personal umbrella policy: PUPs increase liability coverage in million-dollar increments, making them ideal for landlords with multiple properties with a higher risk of lawsuits or medical claims.
  • Form an LLC: Converting your real estate ventures into a limited liability corporation minimizes personal financial risk during litigation.

Do You Need Landlord Insurance on a Mortgaged Property? 

While landlords do not technically need insurance, most lenders will require it for real estate  owners who have financed or mortgaged their properties. Either way, once your home qualifies as a rental property, homeowners insurance will no longer cover you. If you wish for protection against potential damages or liabilities, it’s up to you to switch to the appropriate coverage.

Does Landlord’s Insurance Cover Tenants? 

Generally, landlord insurance explicitly protects landlords should tenants try to sue them, neglect to pay rent, or damage their living quarters. It does not protect tenants or their belongings from loss or injury. However, landlords can still require tenants to secure personal renters insurance, buffering themselves against later confrontations over potential tenant property losses.

Is Landlord Insurance Mandatory? 

As mentioned, property owners are not legally required to purchase landlord insurance.  However, uninsured landlords could face immense repair costs and legal fees following an unforeseen disaster. Therefore, many lenders require landlords to secure coverage regardless of legal precedent, negating the risk of overburdened property owners defaulting on their loans.

Putting It All Together 

If you have recently purchased a property and plan to rent to paying tenants, ensure you secure comprehensive landlord coverage for financial protection against property damage, liability lawsuits, and potential loss of rental income from extended vacancies. Call a trusted insurance agent to compare plans, talk details, and apply for a policy that best suits your needs.