What is Landlord Insurance: A Quick Guide

ByMilica Milenkovic
September 24,2021

If you are renting out residential property such as a house, apartment, or vacation cottage for the first time, you may expect that your homeowners’ insurance will cover all the costs in case of a natural disaster, accident, or any other damaging event. Such an assumption is a recipe for disaster.

Luckily, there is a type of coverage for landlords that can protect you from all threats related to renting out a property. But what is landlord insurance, how does it work, and do you actually need it? Keep reading to find out.

Why Do You Need Landlord Insurance?

Landlord policies offer protection similar to homeowners’ coverage, such as dwelling insurance in the event of a fire or burglary. The main difference between the two types of insurance is that most homeowner policies only apply to owner-occupied properties. Should you start renting out your real estate to someone else, the coverage will no longer apply.

Landlord policies are uniquely written to protect you against risks you may face as a rental property owner, such as injury liability or loss of income. Considering that tenants are rarely held liable for significant appliance malfunctions, burglaries, or forest fire damages, you could be left with serious consequences caused by such misfortunes.

Therefore, getting landlord insurance makes a lot of sense. Still, given that these policies come in many different shapes, we advise that you take your time to figure out what you need to ensure that you get the right landlord insurance policy.

Types of Coverage for Landlords

Based on the length and frequency with which you rent out your property, there are three main types of insurance policies for landlords:

  • Policies for long-term renters: Also called a rental dwelling policy, a long-term renter’s policy is designed for homeowners who rent out their house or apartment for a minimum of six months on end. Although similar to homeowners insurance, this type of insurance is designed to protect you against losses you may face as a result of hosting a tenant for an extended period.
  • Policies for occasional short-term renters: Property owners who rent out their primary residence for short periods and only occasionally may not need to buy additional landlord home insurance, provided that they have an existing homeowners policy. They need to confirm that coverage with their insurance company, though, as some insurers require an additional rider when the home is rented out, even though the coverage type still falls under the homeowners’ insurance category.
  • Coverage for frequent short-term renters: Homeowners who rent out their primary residence regularly for short-term periods (e.g., Airbnb hosts) are typically labeled as business owners by their insurance company. In these situations, property owners cannot count on traditional homeowners insurance policies. Instead, they need to find a good commercial policy for their rental property insurance needs.

What Does Landlord Insurance Cover?

Most landlord policies come with three core protections:

  • Property damage: Much like dwelling coverage offered by home insurers, landlord insurance protects you in the event of damage to the structure or furnishings of your home due to perils such as a natural disaster (fire, wind, hail, snow, or earthquake), electric/gas malfunctions, vandalism, or irresponsible tenants. Here’s a piece of advice - try and get a policy that covers replacement costs instead of providing a predetermined lump sum of cash or the actual cash value (especially if your furnishings and appliances are old). Note that landlord insurance for a rental property typically doesn’t cover your tenants’ belongings.
  • Liability protection: Your landlord policy's medical coverage or liability clause covers medical or legal costs associated with injury claims made on your property due to a property maintenance issue (such as an insect hive or an architectural collapse). Furthermore, this type of insurance can also come in handy if a landlord is found responsible for damage to the tenant's property.
  • Loss of rental income: Also referred to as rental default insurance or rental reimbursement, this clause in your landlord policy protects you from losing income if your property is damaged and uninhabitable due to a fire, severe storm, rat infestation, or severe case of mold. While most policies for landlords offer this type of coverage, it’s better to be safe than sorry and ask your insurance agent if rent-loss insurance is included in your policy. If not, make sure to add it as an optional rider.

Additional Coverage

There are a few more common riders that help form comprehensive landlord insurance policies. Although not as important as the aforementioned provisions, these optional endorsements could come in handy and potentially save you a lot of money in the long run.

Here’s a list of the most popular optional riders offered by most insurance companies:

  • Guaranteed income insurance: Unlike rent-loss insurance, this type of endorsement covers the landlord if a tenant doesn't pay the rent for one month or comes up short on the payment. Even if you take the time to perform a credit check and background screening for your tenants, you can never be completely sure that they’ll always make rent on time.
  • Flood insurance: Keep in mind that some landlord rental insurance policies don’t include flood damage related to municipal plumbing or natural disasters, so opting for this rider can prove invaluable for properties in a flood-prone zone.
  • Additional construction expenses: Also referred to as building code coverage, this type of protection will cover the expenses of bringing your building up to current codes after it has been damaged.
  • Emergency coverage: This protection type comes in handy if a tenant asks you to do minor repairs or gets accidentally locked out of the property. You can use the emergency protection rider on your rental home insurance to cover some or all of the costs of getting to the property and resolving the issue.
  • Non-occupied dwelling endorsement: If your property is uninhabited for more than a month, note that your insurer may deny you coverage for any claims that arise while the home is empty. Adding the non-occupied dwelling rider will extend your coverage to cover periods of vacancy.

Creating a Real Estate LLC

A real estate LLC deals with buying, selling, or renting residential and commercial properties. Creating an LLC for a rental dwelling is a smart choice for any property owner, as it can also work as a type of landlord’s insurance for the rental property.

Not only does a limited liability company structure separate your business and personal assets, it reduces the owner’s liability and comes with the benefit of pass-through taxation. Another great thing about turning your rental into an LLC is that it’ll give you more credibility when approaching new partners or clients - no matter if you work as a real estate professional or just have a single property you want to rent out.

How Much Does Landlord Insurance Cost?

Now that we’ve answered the question “what is landlord insurance,” it’s time to talk about the cost of this coverage type. 

According to a report by the National Association of Insurance Commissioners (NAIC), the average cost of homeowners insurance was $1,211/year in 2019, although the prices varied widely from state to state. However, given that rental properties are more prone to accidents and damage, you shouldn't be surprised if insurers ask 15% to 25% more for landlord coverage than they would for homeowners insurance of the same property.

Here’s a tip for shopping around for landlord coverage: Remember to ask your home insurance provider for bundle options. If you sign up for homeowners’ and landlords’ insurance through the same company, you may be eligible for a discount.

FAQ
What is covered by landlord insurance?

Insurance for landlords provides coverage against risks related to renting out your property. Most policies feature property damage protection, property owner’s liability insurance, and loss of rent coverage as core elements. However, you can also include additional endorsements such as tenant default or accidental damage insurance, depending on your needs and how much you’re willing to pay for your premium.

What does landlord insurance not cover?

Typically, landlords insurance policies don’t cover tenant belongings such as clothes, jewelry, and electronics. To get access to that sort of protection, tenants need to get a renters’ insurance policy. Renters’ coverage is mandatory in some cases, as landlords require prospective tenants to show proof of renters’ insurance before signing a contract.

What is the difference between landlord insurance and home insurance?

It’s hard to answer the question “what is landlord insurance” without comparing this coverage type with homeowners insurance. Much like home insurance, a landlord policy covers damage to your piece of real estate and personal possessions. It also comes with personal liability protection. Landlords’ policies include everything in home insurance policies, with the addition of protection from problems unique to renting out a property, such as loss of rental income.

Is it worth getting landlord insurance?

Landlord insurance may cost a little more than homeowners coverage, but getting it is an excellent idea by most standards. Not only does it offer landlord liability insurance, it protects you from potential legal and medical expenses, ensures that you won’t lose a part of your income if your tenant doesn’t comply with the agreement or evacuates at an earlier date, and safeguards you from theft and damage caused by either your tenants or their guests.

Still, keep in mind that not all policies are the same, and paying landlord premiums won’t make much sense if you don’t get the right coverage.

Is landlord insurance more expensive than homeowners insurance?

Yes, it is. Landlord coverage is 15%-25% more expensive than homeowners’ insurance. So, what is the landlord insurance price you can expect? Well, the average annual premium will set you back approximately $1,500. However, make sure to shop around and inquire about bundle options with your home insurance provider.

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