What property owners need to know about landlord insurance

How does landlord insurance work?

Landlord policies work just like standard homeowners insurance, but they have a few key differences. First, landlord insurance applies to properties rented to tenants, not owner-occupied homes, which homeowners policies cover. It also comes with higher liability limits, as rental property owners face more risks than those who occupy their own homes. Finally, because landlords rely on their rental properties for income, landlord insurance provides coverage for lost income that is missing from homeowners’ plans.

Read more: Why tenant discrimination coverage should be part of every property owner’s insurance portfolio

Contrary to popular belief, landlord policies do not cover tenants’ possessions. They are protected by a different type of plan called renters insurance. Industry experts recommend that landlords require their tenants to take out this form of protection to help cover their belongings in the event of loss or damage and prevent the financial consequences from bouncing back to the property owners.

What does landlord insurance cover?

A Landlord’s Insurance policy comes with three main covers namely:

  • Property Damage: This covers any physical damage or loss to the home and other structures on the premises – such as sheds, garages and fences – caused by a specified peril, which may include fire, wind, hail, vandalism or irresponsible tenants. It may also cover items that the landlord leaves on site to help maintain the property, such as a lawnmower or other cleaning equipment.
  • Liability protection: While most liability falls under the responsibility of tenants, landlords can be held liable for injuries caused by poor property maintenance, including broken staircases, icy walkways and pest infestations. Liability coverage pays for medical or legal expenses resulting from the landlord’s negligence.
  • Rental Income Protection: This type of policy helps provide temporary rental reimbursement if the property becomes uninhabitable, as long as it is due to a covered peril. However, coverage does not apply to voluntary repairs or improvements.

Read more: The best renters insurance providers in the US

Landlords can also take advantage of additional protection or riders for more comprehensive coverage, including:

Rider

What does it cover?

Flood insurance

Flooding and other water damage, including sewer backups and burst pipes

Earthquake insurance

Damage or loss caused by earthquakes

Guaranteed Income Insurance

Lost income if the tenant is unable to pay rent

Construction insurance

Costs to repair or remodel the rental property to meet updated building codes

Emergency coverage

Costs to fix a problem the tenant calls in, such as a leaky faucet or being locked out of the property

Coverage of unoccupied dwellings

Pays for claims incurred when the property has been unoccupied for more than 30 days

How much does landlord insurance cost?

Several factors affect the cost of landlord insurance premiums, including the age and condition of the rental property, where it is located, the type of tenants and features of the home considered high risk.

According to the Insurance Information Institute (III), landlord policies typically cost 25% more than standard homeowners coverage because of the additional protection they provide. For perspective, the average cost of home insurance with $250,000 in home coverage in the U.S., according to the latest data from consumer financial services firm Bankrate, is $1,383. This means that for the same property, landlord insurance would cost about $1,729.

Read more: Top 10 Largest US Home Insurance Providers in 2022

What should property owners consider when purchasing landlord insurance?

Experts advise rental property owners to exercise due diligence when looking for the best landlord insurance policy that fits their needs. Here are some of the factors to consider when looking for the right coverage:

  • Duration of the lease – short-term or long-term
  • Type of tenants – including their rental history and insurance
  • Reason why the property is being rented out
  • Expected rental income
  • Distance from main residence to rental property
  • Responsibility for property management and maintenance
  • Whether renters insurance will be required
  • Contents included in the rent
  • Type of coverage, including exclusions and limitations
  • Insurance discounts that the landlord may be responsible for

Read more: Revealed – The Most Expensive and Cheapest US States for Renters Insurance

Is Landlord Insurance Worth It?

Landlord’s insurance is not required in the US, but may be a requirement for taking out a mortgage on a rental property. Although not required, several consumer finance websites have pointed out the benefits of obtaining this type of coverage.

Forbes Advisor described landlord insurance as “a wise financial decision to protect your asset.”

“Owning a rental property is a great way to earn extra money. But a homeowners or renters insurance policy doesn’t offer the protection you need as a landlord,” according to Coverage.com. “If you own a rental property, you need landlord insurance to protect your personal assets in the event of a loss. You can also purchase endorsements such as flood insurance or building code insurance to extend your coverage even further.”

“Getting the right coverage can make or break your ability to be a successful, long-term landlord, no matter how you plan to rent out your property,” Hippo.com added. That’s why landlord insurance is so important – it protects you legally and financially from anything that might come your way.”

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