A Complete Guide to Landlord Insurance

So maybe you’ve finally saved up the cash to buy that rental property and start earning some passive income. That’s the dream, right? Well, bad tenants—or even just accidents—can turn that dream into a nightmare quick.

Of course, not all situations are quite so dramatic, but one thing is for sure: If you’re a landlord, you need landlord insurance. If you don’t have it, you’re exposing your financial assets to unnecessary risk.

We’ll guide you through everything you need to know, including why you need it, what it covers, what it costs and how to save money on your premium.

So, What Is Landlord Insurance?

Let’s start with the basics: Landlord insurance protects you legally and financially from damages or injuries related to a rental property.

Out-of-pocket costs from damaged rental property can add up quickly. Worse, lawsuits from angry tenants can potentially wipe you out financially.

Whether your rental property sustains damage from a hurricane or your tenant in apartment 4B had an accidental kitchen fire and claims they’re not at fault, landlord insurance is crucial for protecting your assets from events that are completely out of your control.

What Does Landlord Insurance Cover?

Before we get into coverage specifics, there are two things you should know.

First, lots of newbie landlords assume that their homeowners insurance will cover the cost of damage to their rental property. Not true. Don’t make this mistake and get caught unprotected. You need landlord insurance, not homeowners insurance, to protect your asset when it’s being used as a rental.

And second, landlord insurance for small-occupancy dwellings (1-4 units) is sometimes called dwelling fire insurance. So, if you hear someone in the insurance industry refer to landlord insurance as dwelling fire insurance, don’t feel confused—it’s the same thing!

Back to landlord insurance coverage details . . .

A typical landlord insurance policy includes at least three core protections: property damage, liability and lost rental income. Depending on the location and condition of your rental, you might consider additional coverage (more on that later), but for now let’s explore the basic stuff.

Property Damage

This part of your policy provides coverage for the primary rental dwelling, other structures and personal property that’s used to maintain the rental. Here’s what falls under those areas:

• Rental dwelling – What if a hailstorm dents and dings up the roof of your rental condo? If you have landlord insurance, you’re covered for that. Most damage caused by Mother Nature (hail, fire, lightning, wind) is covered. Keep in mind that damage caused by a flood isn’t typically covered (that falls under additional coverage options we’ll get to in a minute).
• Other structures – Suppose your rental property has a detached garage that burns to the ground from a wildfire. The good news is that your policy should pay to rebuild the garage.
• Personal property used to service the property – If you were keeping your lawnmower in the detached garage that was destroyed in the fire, you’re in luck. Most landlord insurance policies only cover the replacement of equipment used to maintain a rental property. If you also stored your prized CD collection in that detached garage, we feel you—but sorry, it’s not covered.

Liability

The liability portion of your landlord insurance policy is meant to help you pay for someone else’s medical or legal bills if that person is injured on your rental property and you’re found responsible.

For example, let’s say you have a tenant who falls down the stairs at your rental property. The tenant sues you and a court decides that you’re responsible for your tenant’s legal and medical costs.

Protect your home and your budget with the right coverage!

In this case, your liability coverage could possibly cover all or a portion of your losses. Keep in mind, though, that the amount your insurance company does or doesn’t cover all depends on the deductible and coverage limits that are spelled out in your policy.

Lost Rental Income

If your rental property becomes uninhabitable because of damage that’s covered by your policy, your insurance company might reimburse you for the rental income you would have received during the time you’re doing repairs. But if interior design is your jam and you want to replace your rental unit’s carpeting with wood flooring, don’t count on getting reimbursed for lost rent while the new flooring is installed.

Additional Landlord Insurance to Consider

Maybe your rental property isn’t in the greatest neighborhood, and you’re worried about tenant vandalism. Or maybe you bought an apartment building in a flood zone and want to make sure your assets are protected in case a flash flood hits your area. Regardless of the reason, purchasing additional coverage for your situation could be a smart move.

Let’s talk about what some of those additional coverage options look like:

• Additional construction – Imagine that your rental property is destroyed by a hurricane (no tenant injuries, thank goodness) and it’s going to cost $500,000 to replace it, but your coverage limit is only $250,000. If you purchased extra construction coverage, you’re covered for that additional $250,000.
• Commercial policy – If you own property that you rent to a commercial business, and you want to protect your assets (smart!), you need commercial landlord liability insurance.
• Flood insurance – Most landlord insurance policies don’t include flood insurance. But if your property is in a flood zone or is prone to flooding in any way, do yourself a favor and buy flood coverage.
• Water backups – Gross. The toilet backed up in one of your rental apartment units and not only did it swamp the bathroom with dirty water, but it also spread into the living room. This type of stinky situation is exactly why water-backup coverage is helpful.
• Maintenance and equipment breakdowns – If your rental condo’s oven works but the stovetop burners won’t turn on, you’ll likely have to pay out-of-pocket to repair or replace it. Unless of course you bought additional equipment coverage.
• Vandalism – Vandalism protection helps pay for repairs in case you have a tenant who considers graffiti as “meaningful artistic expression.”

Now, this is important: Make sure your tenants know their belongings are not covered by your insurance. They need their own renters insurance.

What Does Landlord Insurance Cost?

In general, landlord insurance is about 25% more expensive than homeowners insurance.¹ Yikes! This is because tenants (unlike owners) aren’t likely to notice maintenance issues that, if left unattended, can turn into a major financial setback.

At this point you might be thinking that landlord insurance is just too costly because you’ll never rent to a nightmare tenant. Hold on though. Even if you’re the luckiest landlord in the world and never rent to a problem tenant, the potential financial protection far outweighs the cost of the premium.

There are some smart ways to keep your premiums low. Let’s talk about some ways you can save.

One way to keep policy costs down is to replace outdated features in your rental property with smart home devices. Think about it. In the past when kids forgot to turn off the stove burner, it was a major liability risk. But now with a smart home device, parents can easily control appliances remotely. Insurance companies love that.

And of course, the longer you’re able to rent your property to the same tenant, the lower your premium. You can expect to pay more in annual premiums if you rent your property for short terms (like a week or month at a time) instead of for one year. Why? Well, short-term tenants are even less likely to notice maintenance issues than long-term tenants. Insurance companies consider short-term tenants as a huge risk. So, you want to aim for long-term tenants.

Also, when shopping for a landlord insurance policy, be sure to ask your agent about bundle options. It’s usually cheaper to buy landlord insurance and homeowners insurance from the same company.

Work With an Insurance Pro

To sum it all up, if you’re a rental property owner of any kind and care about protecting your investment, at the very least, you should have basic landlord insurance coverage (property damage, liability and lost rental income). Depending on factors like the location and age of your property, buying additional coverage could be a smart way to protect yourself, both legally and financially.

Ready to rent out a property you own to tenants? Contact one of our independent Endorsed Local Providers (ELPs) for help understanding how landlord insurance protects you. These agents are experts at helping you understand your policy so you can feel confident about protecting your rental property investment. Remember—the right coverage can make the difference between getting sued by a tenant and going bankrupt or becoming a successful long-term landlord.

Find your insurance agent today!