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Thinking about renting out your home or investing in a small residential property with a couple of apartments for extra income? While the idea might seem appealing and being a landlord can bring rewards, it’s crucial to approach this decision with caution to safeguard your financial interests. It’s worth noting that your standard homeowners insurance typically won’t provide adequate coverage once you start renting out your property. This is where landlord insurance steps in.

What exactly is landlord insurance? 

It’s a type of coverage tailored for owners of rental properties, typically ranging from single-family homes to small apartment buildings with up to four units. This insurance serves as a shield against potential financial losses associated with rental properties. It typically covers structural damages and can be tailored to include protection for systems, furnishings, and appliances within the property. However, it’s important to note that landlord insurance doesn’t extend to the personal possessions of your tenants. For their belongings, renters should have their own renters insurance policy. Additionally, as a landlord, you might want to consider adding coverage for Loss of Rent to your policy, ensuring financial protection in case the property becomes uninhabitable due to an unforeseen event.

Why Landlord Insurance is Essential

If you’re renting out your property, chances are your existing insurance policy only covers owner-occupied homes. Once you transition to being a landlord, that coverage typically becomes void. Moreover, renters are often not financially responsible for incidents such as appliance failures, injuries on the property (when not their fault), natural disasters like fires, or burglaries.

This is where landlord insurance becomes indispensable. These policies vary in coverage options and benefits. Before you delve into comparing prices, it’s crucial to identify the specific risks you need protection against in your rental property

Landlord property protection

Landlord insurance is tailored for individuals who rent out properties they own. This insurance typically comprises two primary types of coverage: property protection and liability protection. Both are designed to provide financial security for landlords.

Property Protection:

  • Dwelling Coverage: This aspect assists in covering the repair costs for the rented home, condo, or apartment if it sustains damage from specified perils such as fire, lightning, wind, hail, or other covered events.
  • Other Structures: It extends coverage to detached structures on the rental property, such as a garage or fence, in case they are damaged by covered perils.
  • Personal Property for Maintenance: Landlord insurance may cover equipment like lawnmowers or snow blowers left on-site for maintaining the rental property. However, personal items such as bicycles or DVD players are typically not covered under this policy if left in the rented property.

All the aforementioned coverage types are subject to the deductibles and limits outlined in your specific landlord policy. A deductible is the amount you are responsible for paying towards a covered loss before your insurance coverage takes effect. Meanwhile, a limit refers to the maximum amount your policy will pay out after a covered loss. Each coverage generally has its deductible and limit, and you may have the option to customize these amounts according to your preferences.

Protection for Landlord Liability

In the realm of landlord insurance, the liability component serves as a crucial shield, offering financial support in scenarios where others sustain injuries on your rental premises due to your negligence.

For instance, if a tenant experiences a fall down the stairs of your rental property, and a court deems your lack of maintenance as the cause, you could be held accountable for the ensuing medical and legal expenses. In such instances, your landlord liability coverage steps in to alleviate these burdens, covering costs within the limits of your policy. Notably, deductible payments typically don’t apply to liability claims.

Additional Landlord Coverages to Consider

Depending on factors like neighborhood demographics, geographical location, or the condition of your rental property, it’s wise to explore supplementary coverages to fortify your landlord insurance policy. These may comprise:

  • Vandalism: Opting for this additional coverage can aid in funding repairs necessitated by acts of vandalism. Typically, standard policies don’t cover vandalism damages unless explicitly endorsed. Notably, vandalism occurring after a property remains vacant or unoccupied for 90 days is exempted from coverage.
  • Burglary: While a basic landlord insurance policy may cover damages to windows or doors incurred during break-ins under specific conditions, an optional burglary endorsement extends protection to a broader scope, encompassing all damages caused by unlawful entry and loss or damage to personal belongings.
  • Rental Property Under Construction: If you’re in the process of renovating or constructing a new rental dwelling, acquiring additional coverage can safeguard the structure during its transitional phase until it becomes inhabitable.
  • Building Codes: Following property damage necessitating repairs or replacements, compliance with updated building codes may be obligatory. This coverage facilitates reimbursement for additional expenses incurred due to mandatory upgrades mandated by local building regulations.

Consulting your insurance provider is paramount to uncovering the array of optional coverages available and comprehending their role in fortifying your position as a landlord.

What isn’t typically included in landlord insurance?

Although landlord insurance can assist with sudden and accidental losses, there are often exclusions to its coverage. These may include:

  • Maintenance and equipment breakdowns: Repairs or replacements for items like furnaces or dishwashers are usually not covered by landlord insurance, requiring landlords to pay for these expenses themselves.
  • Property shared with tenants: If you reside on the property and rent out a portion to tenants, you might not qualify for a landlord policy. Landlord insurance typically applies to “non-owner-occupied” properties. However, it’s worth discussing with your insurer the possibility of adding coverage to your homeowners policy for the rented section of your property.
  • Tenants’ belongings: Landlord insurance generally excludes coverage for your tenants’ personal possessions such as electronics or clothing. It’s advisable for tenants to purchase their own renters insurance policy to protect their belongings. Some landlords even require tenants to provide proof of renters insurance before finalizing the rental agreement, ensuring tenants can afford repairs or replacements for their personal items in case of damage from covered perils like fire or theft.

Thinking of renting out your property to tenants? Consult with an insurance provider to explore available options and select the appropriate coverages for your needs.

Cost of Landlord Insurance

The average cost of homeowners insurance was $1,899 as of July 2022, with prices varying based on factors like location and the age of the property. Landlord insurance tends to be approximately 15% higher for the same property due to the increased risk associated with rental properties.

Additionally, premiums for landlord insurance may increase based on the duration of rental periods. For instance, properties rented out for shorter durations, such as 12 weeks, may incur nearly double the annual premiums compared to those rented out for an entire year. This is because short-term tenants may be less attentive to maintenance issues, potentially leading to more frequent and severe problems.

Why does landlord insurance cost more than homeowners insurance?

When shopping for insurance, consider bundling homeowners and landlord policies with the same provider to potentially receive a discount.

It’s important to note that landlord insurance does not cover the belongings of tenants, so it’s advisable to encourage renters to obtain their own renter’s insurance for added protection.

Landlord insurance policies typically come at a premium of about 25% higher than homeowners insurance policies, as reported by the Insurance Information Institute. A few years ago, the average annual premium for landlord insurance stood at $1,478, whereas homeowners insurance averaged $1,192.

To illustrate, when we gathered insurance quotes for a standard 3-unit rental property in Chicago from five different providers, premiums varied significantly, ranging from $2,400 to $6,600 for identical coverage. Consider applying for a landlord insurance quote from Steadily today to explore potential savings!

The reason behind the higher cost of landlord insurance becomes evident upon considering the occupants of the property. Insurance providers observe fewer claims and lower average losses in owner-occupied residences compared to rental properties. It’s a common understanding that property owners tend to maintain their assets more diligently.

Furthermore, a discrepancy arises in the liability insurance coverage amounts. Landlords typically require higher coverage levels to shield themselves from potential lawsuits and legal expenses arising from injuries sustained by tenants or visitors. It’s standard practice for landlord policies to offer a $1 million liability limit.

Are there landlord insurance discounts?

Landlord insurance discounts are available, but they differ from other types of insurance such as car insurance, which often offer deals like discounts for good grades or completing driving courses. With landlord insurance, discounts are less deal-driven. However, you can still save money in two primary ways:

  • Safety Devices: Installing burglar alarms, fire sprinkler systems, or motion sensors can lead to reduced premiums.
  • Multiple Properties: Bundling landlord insurance for all your rental properties with the same company can result in lower premiums for each policy.

Does my homeowner’s insurance policy cover my rental property?

Whether your homeowner’s insurance policy covers your rental property depends on various factors, including the frequency and duration of rentals:

  • Frequent Short-Term Rentals: If you frequently rent out your property for short durations through platforms like Airbnb or VRBO, or operate it similarly to a bed-and-breakfast or hotel, you will likely need a commercial insurance policy.
  • Infrequent Short-Term Rentals: For occasional short-term rentals, such as renting out your primary residence while you’re on vacation for less than 30 days, you may be able to use your homeowners policy with approval from your insurance provider.
  • Long-Term Rentals: For extended rental periods, such as typical 6-month or 1-year leases, purchasing a landlord policy is advisable.

In general, personal insurance typically doesn’t cover commercial activities. For example, while an umbrella policy is often recommended to provide additional liability coverage above homeowner’s policy limits, it won’t apply to your rental investment property if it’s structured as a separate business or LLC.

Should I also buy renters insurance?

No, it’s unnecessary to purchase both a landlord policy and a renters policy. Landlord insurance, sometimes referred to as rental property insurance, typically covers the property itself, while renters insurance protects tenants’ personal belongings and provides liability coverage.

Many landlords require tenants to have renters insurance to simplify the process in case of personal property claims. For instance, if a fire damages the rental property and tenants’ belongings, they may seek compensation from the landlord, despite being responsible for protecting their possessions with renters insurance.

Landlords also encourage renters insurance to support tenants in the event of a significant claim. Consider the scenario of a fire rendering the rental uninhabitable. Without renters insurance, tenants might struggle to cover living expenses during repairs. Renters insurance can assist with these costs, while landlord insurance can compensate the landlord for lost rental income during the property’s restoration.