What property owners need to know about landlord insurance

How does landlord insurance work?

Landlord policies operate just like a standard homeowners’ insurance but have a few key differences. First, landlord insurance applies to properties rented out to tenants, not to owner-occupied residences, 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. Lastly, because landlords are reliant on their rental property for income, landlord insurance provides coverage for lost income, which homeowners’ plans lack.

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Contrary to popular belief, landlord policies do not cover tenants’ possessions. These are protected under 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 for their belongings in case of loss or damage and prevent the financial ramifications from bouncing back to the property owners.

What does landlord insurance cover?

A landlord insurance policy comes with three core coverages, namely:

Property damage: This covers any physical damage or loss to the dwelling and other structures within the premises – such as sheds, garages, and fences – caused by a named peril, which can 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 will fall under tenants’ responsibility, landlords can be held liable for injuries caused by poor property maintenance, including broken staircases, icy walkways, and pest infestation. Liability coverage pays out the medical or legal expenses resulting from a 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. Coverage, however, does not apply for voluntary renovations or improvements.

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

Rider

What it covers

Flood insurance

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

Earthquake insurance

Damage or loss caused by earthquakes

Guaranteed income insurance

Lost income if tenant is unable to pay rent

Building code insurance

Cost to repair or rebuild the rental property to comply with updated building codes

Emergency coverage

Cost to resolve an issue that a tenant calls in such as leaking faucet or being locked out of the property

Non-occupied dwelling coverage

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

How much does landlord insurance cost?

Several factors influence the cost of landlord insurance premiums, including the age and condition of the rental property, where it is located, the type of tenants, and home features 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 dwelling coverage in the US, according to the latest figures from consumer financial services firm Bankrate, is $1,383. This means that for the same property, landlord insurance will cost around $1,729.

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What should property owners consider when buying landlord insurance?

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

Length of rental – short-term or long-term
Type of renters – including their rental and insurance history
Reason why property is being rented out
Expected rental income
Distance of primary residence to the rental property
Responsibility for property management and maintenance
Whether renters’ insurance will be required
Contents included in the rental
Type of coverage, including exclusions and limitations
Insurance discounts the landlord may be eligible for

Read more: Revealed – The most and least expensive US states for renters’ insurance

Is taking out landlord insurance worth it?

Landlord insurance is not mandatory in the US, but it may be a requirement for taking out a mortgage on a rental property. Although not compulsory, several consumer financial websites pointed out the benefits of getting 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 make 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 have a rental property, you need landlord insurance to protect your personal assets in the event of a loss. You can also purchase endorsements, like 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 and long-term landlord, no matter how you plan to rent out your property,” Hippo.com added. This is why landlord insurance is so crucial – it protects you legally and financially from anything that may come your way.”