If you’re currently renting out your home or considering purchasing a home to rent, you should consider landlord insurance. Landlords face many risks that insurance can help protect against. But what exactly is landlord insurance, how much do you need and what does it cover?
What is Landlord Insurance?
Landlord insurance is a like a homeowner’s insurance policy for landlords who rent out their properties. It provides financial protection if:
- Your rental property is damaged or affected by a natural disaster
- Someone is injured on the property
A standard homeowner’s insurance policy provides limited protection for rental properties. A landlord insurance policy will bridge this gap and ensure that you get the financial protection you need.
What Does Landlord Insurance Cover?
While every policy and insurance company are different, a standard landlord insurance policy will cover the following:
A standard landlord insurance policy will include liability. Liability coverage pays for medical bills or legal expenses if someone is injured on your property and you are found to be at fault.
Property damage coverage will typically cover any physical property associated with the home, which may include:
- The dwelling itself. Your policy may cover the cost of repairs to the rental property if it’s damaged by fire, wind, lightning, hail or another covered loss.
- Personal property used to maintain the rental, such as a snowblower or lawnmower. Personal items that aren’t necessary for the maintenance of the property (such as a personal bike) likely won’t be covered.
- Other structures on the property, such as a fence, shed or garage, if they are damaged by a covered loss.
Loss of Income
If your rental property becomes uninhabitable due to a covered loss, your policy may reimburse you for lost income.
Landlords can also purchase additional coverages to shield against financial losses, including:
- Vandalism. A typical landlord policy likely won’t cover damage caused by vandalism. You will need additional coverage for this protection.
- Burglary. Suppose someone breaks into your rental property and steals items that you keep on the property to maintain it, such as a snowblower or lawnmower. In that case, burglary coverage will cover the cost of replacement.
- Building code. If your property needs to be repaired, you may need to bring the building up to code, too. This may mean installing new plumbing or wiring. A building code policy can help offset the cost of these upgrades.
- Flood and earthquake insurance. Depending on your location, you may want or need flood or earthquake insurance. Most landlord insurance policies do not cover damage caused by these perils.
Landlord insurance will not cover:
- A tenant’s belongings. They will need their own renter’s insurance policy to cover their personal items.
- Repairs due to normal wear and tear. If the furnace breaks, you will be responsible for the cost of repairs.
How Much Insurance Do I Need As A Landlord?
The amount of landlord insurance you need will depend on several factors. Ultimately, you need to ensure that you have enough coverage to cover the cost of rebuilding your home if it were to be destroyed.
Landlords typically choose deductibles and coverages that fit their risk tolerance and current financial situation.
When deciding how much coverage you need, there are two big things you need to consider: building and liability.
If your rental home were to be destroyed tomorrow, how much would it cost to rebuild it? That’s how much you’ll need in building insurance.
Keep in mind that the cost to replace the home isn’t necessarily the home’s market value. Your property may be worth $350,000 today, but it may only cost $330,000 to rebuild it – if it’s a relatively new home. On the other hand, if your home was built 20 years ago, the cost to rebuild the same structure may be significantly higher.
This is where things can get complicated with landlord insurance. Your latest tax assessment can give you a ballpark estimate of replacement costs, but it’s worth calling around to get some expert opinions.
Your rental property is a significant investment, and you want to ensure that you’re protected against a total loss. Ensuring you have enough coverage to rebuild your property can give you that protection.
Determining how much liability coverage you need can be a little tricky. It ultimately depends on your current financial situation and the types of tenants in your home.
But as a general rule of thumb, landlords who own 1-4 units will choose $1 million in liability coverage. As the number of properties and tenants grows, your coverage will need to grow along with it.
Make sure that you’re choosing a limit that will cover the cost of a serious injury lawsuit if a tenant is hurt on your property.
Commercial Property Owner Insurance Requirements
Typically, landlord insurance is not required for rental properties. However, if you have a mortgage on the property, your lender may require you to have a certain level of coverage.
Even if insurance is not required and you own the property outright, it’s in your best interest to obtain landlord insurance. The cost of an injury or damage caused by natural disasters or vandalism can be catastrophic. You may be one lawsuit or disaster away from bankruptcy and losing your ability to rent out the unit.
How Much is Landlord Insurance?
The cost of landlord insurance will vary greatly depending on:
- Your location
- How many units you own
- The size of the dwelling
- How long the property will be rented
- Whether there is a pool
Personal factors may also come into play, such as your personal credit score and claims history.
In general, landlord insurance is more expensive than homeowner’s insurance by about 25%. The more units you have to cover, the higher your costs will be. But you can expect to spend at least $1,200 on your policy. The national average for home insurance is $1,383 for a $250,000 home. You can expect to spend 25% more than that if your property has a similar value.
How to Save on Landlord Coverage
Although landlord insurance is more expensive than a homeowner’s insurance policy, the cost is still negligible compared to the risk of paying out of pocket. Still, there are steps you can take to lower your premiums, such as:
- Maintaining good maintenance records. Keep a list of all updates you perform on the home. Insurance companies prefer homes that have modern updates and will likely give you a preferred rate for them. Keep records of updates for plumbing, electrical, roof and HVAC.
- Increase your deductible rather than lowering your coverage limits. It’s tempting to reduce the amount of coverage you have to lower the cost of your policy, but doing so will only increase financial risk. Instead, increase your deductible to lower your rate without the added risk.
Why You Need Commercial Landlord Insurance
Rental properties can be lucrative, but they still require significant investment and come with inherent risks that can have astronomical costs if you’re not protected. Landlord insurance can cover the cost of repairs if a covered peril occurs or legal costs if a tenant decides to file a lawsuit after an injury. Furthermore, your homeowner’s insurance policy will provide inadequate coverage that will leave you responsible for costs out of pocket.