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If you have a rental property or occasionally rent out your own home, there is a good chance you should be carrying landlord insurance to fully protect your rental property. A typical homeowner policy almost always excludes damage and liability risks presented by renters.

Here is a brief overview of everything you need to know about landlord insurance:

  • Landlord insurance is a policy that protects your rental from perils such as fire, wind, and hail.
  • It also provides liability and medical coverage if someone is injured on the property.
  • Landlord insurance policy provide coverage for property damage, landlord liability and loss of rental income.
  • You may be required to purchase an insurance policy that is sufficient to cover your outstanding mortgage balance and rebuild the property.

What is landlord insurance?

Landlord insurance is very similar to homeowners insurance, it protects your rental from perils such as fire, wind, and hail while also providing liability and medical coverage if someone is injured on the property.

Landlord insurance is designed for property owners who rent out all or part of their property. A landlord's insurance policy will usually cover damage to the building as well as the owner's belongings. These policies also come with a liability and medical component in the event someone is injured on the property.

Landlord insurance only covers the building and any of the owner's property that is stored and used on the premises, the interior contents of the building, basically your renters’ personal belongings will not be covered.

Due to the fact that rental properties are considered riskier to insure than a family home, landlord polices can cost up to 25% more a year than a homeowners policy on the same property, according to the Insurance Information Institute. If you have a rental, landlord insurance is a must, if your rental is damaged and you are only carrying homeowners insurance, your claim may be denied, leaving you to pick up the tab on repairs.

What type of landlord are you?

Your insurance needs may vary depending on how often and how long you rent out your property. The best landlord insurance for your situation may vary depending on what type of landlord you are, here are three rental scenarios to consider:

  • Long term rental: If you rent your house or apartment to the same person for at least six months, you should absolutely carry landlord insurance which is sometimes called a “rental dwelling policy.” If you primarily rent your property to long-term tenants, you must carry this coverage.
  • Occasional short-term rental: If you only rent out your primary residence, occasionally and only for short periods of time you may not need a landlord policy, your homeowners policy may provide all the coverage you need. However, requirements vary by insurance companies, so it is essential you check with your insurer regarding coverage before renting out your home, even for a short period of time. Some insurers may require a rider on your homeowner policy for the occasional short-term renter.
  • Frequent short-term rentals: If you rent your property on a regular basis using sites such as Airbnb or VRBO, your insurer will most likely consider it a business and will deny any claims on a homeowner policy. If you rent your property on a frequent basis for short term rentals you will need a landlord policy to fully protect your property. Some insurers may allow you to add a short term rental rider to your homeowner policy, the best advice is to check with your insurer as to what they require. You can also read our guide to Airbnb insurance.

What coverage does a landlord insurance policy offer?

While coverage can vary by insurers, the majority of landlord policies offer these protections:

Property damage: This coverage will cover damage to your home from covered perils such as wind, fire, hail, lighting and any other perils listed in the policy. It may also cover damage from vandalism. In most cases it will also protect any of your personal property in the home that are left onsite for your tenants use. This can include things such as appliances, televisions, lawnmowers, snow blowers, electronics as well as furniture.

A landlord insurance policy typically does not cover a renter’s personal property so they would need to put a renter’s insurance policy in place to protect their personal possessions.

Other structures: Most landlord policies also protect any detached structures at your rental. This can include detached garages, sheds, barns and even fences and mailboxes.

Landlord liability insurance: Just like a homeowner policy, a landlord policy provides liability and medical coverage protection. If a tenant falls and is injured on your property this coverage will help cover their medical bills and any legal costs (up to your coverage limits) if they decide to sue. This can include the cost of your legal defense as well as any settlements or judgements that arise from the lawsuit.

In most cases, the coverage is limited to your tenant. If a guest of your tenant is injured, they would need to turn to your tenants’ renter’s insurance policy to cover their injuries.

Loss of rental Income: Many landlord policies offer loss of rental income coverage a well. If your rental is damaged by a covered peril and you are unable to rent it out, your policy should cover the lost rental income. Always check with your insurer to see if this coverage is standard or if a rider is necessary.

Urge your tenants to buy renter's insurance

It is important to note that landlords insurance never covers your tenants personal property. They need to protect that on their own with a renter’s insurance policy.

It is always a good idea to require your tenants to purchase renters insurance and show you proof of the policy when they sign the lease. If necessary, you can require that they carry renters insurance in the lease and also require that they name you as an additional person on their policy.

Other coverages you may want to consider for a rental property

While landlord insurance is a must on rental properties, you may want to consider these additional coverages as well:

  • Flood insurance: Just like a homeowners policy, the majority of landlord and renters policies exclude flood damage. Depending on where your rental is located, your mortgage lender may require that you carry flood insurance and if you live in a high-risk zone, you may be legally required to carry flood insurance. Your insurance agent should be able to help you determine if you need to carry flood insurance. Flood insurance can be purchased via the National Flood Insurance Program (NFIP) or in the private market. It can be expensive, especially if your rental is waterfront but flood insurance can be a financial lifesaver if you home is seriously damaged or destroyed by flooding.
  • Earthquake insurance: Landlord policies also exclude damage from earthquakes so if your rental is in an earthquake prone area, you should be carrying this coverage. Earthquake coverage comes with a fairly pricey deductible, in most cases it is 5 to 25% of your total coverage on the rental. This means that if you carry $250,000 in coverage on your rental, your earthquake insurance deductible will be $25,000 if you have a 10% deductible. While this seems (and actually is) a very high deductible, it is much less than having to cover the entire bill to rebuild or repair your rental after a major earthquake.

How much does landlord insurance cost?

There is really no accurate way to answer this question as insurers consider all types of factors when setting a premium and many of those are specific to the property. However, in the battle of landlord insurance vs homeowners insurance, a landlord policy will always cost more due to the increased liability risks. According to the Insurance Information Institute, if you are looking for a ballpark figure, add 25% to your homeowner insurance costs.

The reason that landlord insurance costs more comes down to the increased liability risks that come with tenants. Accidents happen and renters are more likely to ignore maintenance on the property that can lead to damage to the property and insurance claims, all things that insurance companies find risky.

The best advice is to get a landlord insurance quote from numerous insurers to make sure you are getting the best policy and premium. The best landlord insurance companies will vary by your location, so it is always a good idea to shop multiple insurance companies before deciding on a policy. Make sure you are comparing apples to apples when it comes to coverage levels and deductibles.

How much landlord insurance should I buy?

If a property is mortgaged, the lender will usually require an insurance policy sufficient to cover the outstanding loan balance or rebuild the property. Coverage above that level and extra coverage options are completely up to the landlord as landlord insurance is not legally required.

When considering insurance on property which has significant value and which can be associated with landlord liability insurance claims, only very high net worth individuals are likely to find complete self-insurance a viable option. In other words, unless you can easily afford to cover the costs of significant repairs or even rebuilding the entire home, you should be carrying landlord insurance.

When getting a landlord insurance quote, it's wise to consult several insurance agents or companies that specialize in business insurance. They can help you choose the perfect solution for your specific rental property.

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