A Guide to Landlord Insurance

By Kaitlin Hurtado on March 26, 2019

Think about all the things that you hold value to your life – your health, your car, and your own living space. If you are venturing out into the process of becoming a landlord, your rental property will certainly be added to the list of valuable items. All these valuable items ideally all have one thing in common: an associated insurance policy. Health insurance, car insurance, homeowner’s insurance, and you guessed it – landlord insurance.

Landlord insurance, just like any type of insurance, can be overwhelming if it is your first time even finding out about it. There are various things to consider: whether or not you will actually need it, where to get a landlord insurance policy from, what is covered through landlord insurance, and so much more. Read on for a quick guide on navigating the realm of landlord insurance to protect your investments and yourself:

via Unsplash.com

Do you even need landlord insurance to begin with?

You may just be thinking that a landlord insurance policy is just another unnecessary added costs to factor into your budget, but it may be the very thing you need. Landlord insurance is not a legal requirement, which may further the argument that you do not actually need it. You do, however, want to be protected in certain circumstances that you do not anticipate when becoming a landlord. If you were to get a car, wouldn’t you purchase a car insurance policy to protect you in the case of a collision? The same can be said for landlord insurance.

So when is a landlord insurance policy not necessary? If you are renting out your property for a very short time period (a long weekend or a couple of weeks of vacation) or renting out part of a home you are still residing in (a bedroom, guesthouse), landlord insurance is not a necessary step as the amount of time is too short to truly be worth the cost or hassle of landlord insurance, or, if your current homeowner’s insurance is still going to be able to cover you when needed. You will want to double check with your current homeowner’s insurance policy before you make any final decisions, but in many cases, there is no need to shell out extra money for additional landlord insurance when you are getting coverage elsewhere.

If you are actually renting out property full-time, or near full-time, consider getting a landlord insurance policy. Landlord insurance and homeowner’s insurance differs in the following ways:

Rent: Depending on the type of landlord insurance you choose, landlord insurance may be able to cover the rental income you are expected to get when the property is not able to be rented out during covered repairs or construction.
Risks: Landlord insurance will cover a larger variety of risks, taking into consideration the risks that come from a rental property as opposed to your own home. The additional risks can include property damage from your tenants, tenants suing you over rental policy, or even long term property issues that go unchecked by you and your tenants.
Pricing: With the additional risks and wider coverage considered, landlord insurance generally costs anywhere from 12 percents to 25 percent more than your typical homeowner’s insurance.

Infographic by Kaitlin Hurtado, via canva.com

What exactly is covered in landlord insurance?

Your typical landlord insurance policy should cover liability, property, and rental income replace. Additional options should be considered based on your rental property and your needs.

Property coverage is broken down into three different tiers of Dwelling Protection (DP): DP-1, DP-2, and DP-3.

DP-1 is the lowest coverage level and covers basic problems like fires and vandalism to the property. If the property is a complete loss, this will pay the depreciated value of the home at the time it was lost due to the problem instead of the actual cost of the replacement.
DP-2 adds more coverage with a specified list of covered events, generally including tenant property damage, weather like hail, and even damage from a car colliding with your property. If damage to your property happens in an event that is not included on the list, it will not be covered.
DP-3 is also known as an “open-peril” policy, this tier covers all damages unless they are specifically excluded in the policy. They will pay the actual replacement cost (unlike DP-2) if the property is lost during a damaging event. If you are looking to get landlord insurance, this is usually the one recommended unless you get additional coverage by a condo association.

Flood insurance is something that is not often included in landlord insurance policies. Instead, it is sold by the federal National Flood Insurance Program, but can often be sold to you through your insurance agent in addition to your landlord insurance policy.

Liability is something added with the additional risk you are taking on as a landlord of a property you are renting out. This includes personal injury coverage, where tenants and guests can file a liability claim against you for medical costs incurred from suspected unsafe conditions on your property. Their personal property damage can also be another grounds where they charge money for replacement costs. Landlord insurance can cover you in instances where you are legally liable when tenants file legal claims for issues of illegal evictions or invasions of privacy. If you have a landlord insurance policy, you will have access to legal counsel when you actually do need it.

A landlord insurance policy will also have coverage for loss of rental income, which will protect you from losing rental income when your property/unit becomes uninhabitable. In order to receive coverage for loss of rental income, you need to have proof of physical damage that deems your property uninhabitable. You cannot just get coverage when someone is evicted or if you have not found tenants yet.

You can also choose to add additional coverage, including:

Emergency repair service for furnaces, air conditioning units, and water heaters.
Emergency lock replacement.
Mold coverage. Mold is not always visible and can go unreported until it causes larger issues like serious medical conditions for your tenants. You can be legally liable for those health conditions.
Online policy management.
Coverage for specific natural events. This will vary based on where your property is located. If you are living somewhere where hurricanes or something similar is likely, you may want to take out additional coverage. Ask your insurance agent for guidance on this one.
Personal property coverage. This will expand your base property coverage to include all content in the unit that belongs to you such as window blinds/curtains, floorings, and furniture. This additional coverage is almost a necessity when you are renting out a furnished unit or if you have valuable appliances within the unit as well. This will not cover the personal property of your tenant’s, however (which is when their own renter’s insurance will come in handy).

What should you look for in your landlord insurance policy?

You may be drawn to low-priced landlord insurance policies, but you will want to make sure that you have proper coverage when the time comes. Low-priced landlord insurance policies can pay you the “cash value,” which refers to the depreciated cost of the covered item. If you have an item that is five-years-old damaged, the “cash value” will depend on how much you paid five years ago and the decreased value of every year you’ve had it in your possession. When it comes time to replace the item, you may get an amount nowhere near the actual cost of getting a new one. Get a landlord insurance policy with guaranteed payouts and stay away from cash value policies.

Depending on the region that your property is located in, flood insurance may be a necessity. If you are located in a flood-prone region, the cost for flood insurance may be higher as you are a higher risk, but it will be well worth it when you get coverage when you really need it.

Another thing you will want to make sure you have with your landlord insurance policy is customization. You will want a policy that is suited to you and your property’s needs – you do not want to pay money for coverage you don’t need, and you don’t want to miss out on having the coverage you actually will need.

Are you paying the “right” amount?

As mentioned, you will want to make sure that your landlord insurance policy is specific to your needs and you will want to know exactly what you are paying for in your landlord insurance.

Consult your insurance agent – do not just go after each category of coverage you can get to feel “fully covered.” If you do just try to get after every type of coverage, you will most likely end up with an excessive amount of unnecessary expenses.

Like most other types of insurance, you will ultimately have to pay less if you are considered lower risk. If you are looking to lower your risk and lower the cost of landlord insurance policies, you can try the following:

Install a sprinkler system.
Have an absence of known risks in the area surrounding the property.
Require your tenants to purchase renter’s insurance.
Install security alarms and/or gates – the safer the community and property, the better.
Inspect for mold and electrical.
Establish a no-smoking policy on the property.

There are other factors that make your property high-risk that are harder to change, including the age of the property, location, and size and the number of units available ready to rent. The presence of a swimming pool can also increase the risk of your property (a lot can go wrong with a swimming pool, and you would be liable for it).

As your rental property is seen as a business – the added cost of a landlord insurance policy can be cut when it is time to file your taxes as it is a business expense.

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Where do you buy a landlord insurance policy?

Landlord insurance can be hard to navigate on your own – not even all the guides on the internet can help you feel completely sure of yourself and your decision. Get the help of an insurance agent to help guide you through the process of purchasing your landlord insurance policy.

Be ready to shop around for the right agency for you. It is another investment where you will be placing money into, so be prepared to put in some research. Look at ratings and reviews for the insurance company, check for any unpaid claims from customers, and research their options for landlord insurance policies specifically. Consider how accessible the company is as well – is their office easily reachable for an in-person visit or will you be relying on phone calls? You should also see if you qualify for a discount if you get a landlord insurance policy from the same insurance company you have purchased other policies from, like an auto policy.

Some companies popular and reputable for landlord insurance policies include:

Nationwide Insurance, which can give you a quote online as you are testing the waters. They offer other types of insurance policies as well if you want to pay the same company for several insurance policy types.
State Farm offers two types of landlord insurance: one for condo and one for other types of rental properties.
AP Intego helps you find the right landlord insurance policy for you, at the best price. This is a great option if you are looking for customization in your landlord insurance policy.

Trust your insurance agent, but also make sure that you know exactly what is included or excluded in the landlord insurance policy you will be paying for.

Becoming a landlord is no easy feat – you will now be financially and legally liable for the rental property you are managing. With the right landlord insurance policy, you will be effectively protecting your own investment and yourself in order to run your property as an efficient and safe business.