Insurance, Property Management

What is Landlord Insurance?

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Why Homeowners Insurance isn’t Enough for Your Rental Property

Homeowners and landlords alike all know that they need insurance for their properties. What many landlords don’t realize though is that once they start renting out their property, it’s better to get a dedicated landlord insurance policy for rental properties rather than sticking with a homeowners insurance policy. But most don’t understand the difference between them, or why it matters as long as you have coverage.

When it comes to insurance, it’s crucial that you have the right coverage. You don’t want to be underinsured as that can put you in a devastating situation should you need to make a claim, but you also don’t want to be overinsured and pay for coverage that isn’t relevant to your current situation. This is why getting a customized landlord insurance policy is so vital for everyone who rents out their properties.

What is the Difference between landlord insurance vs homeowners insurance?

Homeowners insurance and landlord insurance are both types of property insurance that can protect your investment in a property. However, there are some key differences between the two policies. Homeowners’ insurance typically covers the structure of the property as well as the belongings of the occupants. In contrast, landlord insurance typically just covers the structure of the property. 

Landlord insurance also typically includes liability coverage in case a tenant is injured on the property, while this may be an optional add-on for homeowners insurance. As a result, it’s important to choose the right type of policy based on your needs. 

So what exactly is covered under landlord insurance? 

Landlord insurance typically includes coverage for the dwelling, other structures on the property, liability, and loss of temporary rental income. Landlord insurance typically consists of two main parts: property and liability. The property part naturally protects the property itself, while the liability part protects you in case there is an accident on the premises where either a tenant or the guest of a tenant ends up getting injured.  

Under property coverage you will normally find:

  • Building limits
  • Wind/hail coverage
  • Water damage
  • Additional coverage such as ordinance or law, water and sewer backup, employee dishonesty, forgery, electronic data, etc.

Under liability you will normally find:

  • Occurrence and aggregate limit
  • Medical expenses
  • Certified terrorism
  • Damages to premises rented to you
image of home protected by landlord insurance

What does landlord insurance not cover?

Landlord insurance typically does not cover intentional damage done by the tenant, such as vandalism. If the tenant accidentally damages the property, landlord insurance will likely cover the repair costs. 

Landlord insurance also usually does not cover theft by the tenant, unless the theft is a result of a forced entry (such as a break-in). 

Lastly, landlord insurance does not cover your tenant’s personal belongings; for that the tenants will need to get renters insurance. It’s highly advisable for landlords to recommend tenants to get renters insurance, but you cannot legally force your tenant to buy coverage unless you will add this to your rental agreement. Be aware though that this may intimidate some renters, even though it’s in their best interest.

How much does landlord insurance cost?

Naturally, the cost of getting landlord insurance will vary, but can typically cost anywhere from $500 for an average-sized single-family rental to $4500 for a large single-family rental for example. The main factor when it comes to price is the property itself. By this we mean foremost the value of the property itself, but also the area it’s located in. Regions that are more prone to perils such as windstorms or hail will usually have higher insurance rates.

However, the value of the property will be the main factor for the overall price. The most important part of any type of property insurance will always be replacement costs. If you end up having to completely rebuild the property, you need to make sure your insurance policy will actually cover all the costs of rebuilding. Be aware that market value is NOT the same as replacement costs. Your house may be valued at $500,000 for example, however if you would have to rebuild it from scratch that would most likely cost a lot more. 

Another factor is the deductibles. Choosing a higher or lower deductible would also affect the policy, but to a lesser degree than replacement costs. If you have a substantial amount of savings, you might want to consider a higher deductible. But don’t choose a deductible that is so high that you wouldn’t be able to cover the expense yourself. 

In addition, there are extra coverages you might want to consider, such as equipment breakdown if your property has very heavy machinery, for example a large central airconditioning, but make sure you don’t add on coverage you’ll never end up needing. 

How do you get a quote For Landlord Insurance?

Traditionally, you would get these quotes through an agent or a broker when you obtained the property, or you could leave your details with a carrier who would then get back to you. In recent years, however, there has been a lot of change in the industry. Companies like Honeycomb Insurance will let you get a bindable quote directly on their website, without having to wait on third parties. If you already received a quote through your broker or agent, it may be a good idea to obtain additional quotes through these direct-to-consumer companies. 

Not all insurance companies are created alike

It’s very important to choose a carrier that has an excellent financial rating. If the carrier isn’t rated AM Best “Excellent” or “Superior”, it could mean that the company doesn’t have sufficient capital reserves to pay out claims if needed, which essentially means the policy is useless. If you financed your rental property with a mortgage, an AM Best “Excellent” or “Superior” rated carrier will usually be required by the lender.

You should also never obtain a policy through a carrier that isn’t admitted. Non-admitted insurance companies often fly under the regulation radar, and should only be used as a last resort. 

Bottom Line

Properties that are being rented out should always have a dedicated landlord insurance policy. 

  • Don’t buy a homeowners insurance policy for properties that are being rented out. When you become a landlord, you need the right coverage to protect your property
  • Opt for a landlord insurance policy that will give you the most accurate replacement costs – if you need to rebuild your property from scratch, you want to make sure you’ll be 100% covered
  • Don’t skimp on liability coverage – as a rule of thumb, always make sure you have at least $1,000,000 in liability coverage. 
  • Go for the highest deductible you can afford – this will lower your premium rate, and you want to avoid small claims in any case as this will surely increase your rates upon renewal and may even prevent you from getting insurance in the future
  • Always buy insurance from a carrier that is admitted and has the financial rating of AM Best “Excellent” or “Superior”

Disclosure: Some of the links in this post are affiliate links and Landlord Gurus may earn a commission. Our mission remains to provide valuable resources and information that helps landlords manage their rental properties efficiently and profitably. We link to these companies and their products because of their quality, not because of the commission.

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About Chris Lee

Chris comes from a family of real estate investors, and remembers well his childhood of helping to prepare apartments between renters. He now manages his own property, apartment complexes, and condos. He has particular insight into the issues around short-term rentals as he manages those for himself and for other owners.
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