What Does Landlord Insurance Cover?

What Does Landlord Insurance Cover?

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Landlord insurance provides coverage that’s similar to homeowners insurance, such as dwelling coverage to protect your property in the event of a fire. However, landlord policies are written specifically to protect against risks landlords can face, such as injury liability or loss of rental income.

Because of these additional coverages, and since rental properties are generally riskier to insure, landlord insurance policies typically cost as much as 25% more than their homeowners insurance counterparts. Landlord coverage is important because, if your rental home is damaged, you may be denied coverage if you have only a standard homeowners insurance policy.

What Insurance Do You Need as a Landlord?

The type of insurance policy you require depends on your insurance provider and the length and frequency with which you rent out your property. Here are three scenarios:

  • The long-term renter: Homeowners who rent out a house or apartment for at least six months will need landlord insurance, also called a "rental dwelling policy." Landlord insurance is similar to homeowners insurance, but tailored to protect against losses related to leasing out a property. According to the Insurance Information Institute, landlord insurance costs about 25% more than traditional homeowners insurance.
  • The occasional short-term renter: Homeowners who rent out their primary residence only occasionally for short periods of time may be protected by their existing homeowners insurance policy. However, they must notify their insurance company and confirm that coverage. Some insurance companies require an additional rider for when the home is rented out, although coverage still falls under the homeowners insurance policy.
  • The frequent short-term renter: Property owners who rent out their primary residence regularly for short-term periods (such as an Airbnb host) are usually considered business owners by their insurer. As such, these property owners are not typically covered by traditional homeowners insurance policies. Instead, they must purchase a commercial insurance policy for their coverage needs.

What Does Landlord Insurance Cover?

Most landlord insurance policies offer protection from three types of losses:

  • Property Damage: Much like dwelling coverage under a homeowners insurance policy, landlord insurance covers damage to the structure of your home due to covered perils such as fire, wind, hail, or snow. Additionally, the policies cover personal property, such as kitchen appliances, furniture, or televisions that are onsite for tenant use.
  • However, landlord insurance typically won't cover the tenants' personal property. Always review the types of coverage listed on your landlord policy's declaration page. If certain coverages, such as vandalism, aren't listed, ask your insurance agent if those need to be added as optional riders.
  • Liability: Your landlord policy's liability or medical coverage clause protects you legally if someone is injured on your property. For example, if a tenant falls and breaks a bone on your property, they may sue you. In this case, your insurance company would try to reach a settlement on your behalf and pay the associated costs, less any relevant deductibles. However, if a tenant's guest is injured on your property, it would likely be the tenant’s renters insurance policy that would cover liability for any lawsuits.
  • Loss of Rental Income: If your property is damaged in a covered event and you're unable to rent out the home, your landlord insurance policy may cover your lost rental income. Ask your insurance agent if rent-loss insurance is included in your policy or if it needs to be added as an optional rider.

Beyond these common types of coverage, your landlord insurance provider may offer other forms of protection, either as part of the core policy or as optional endorsements. For example, State Farm offers coverage for "tenant move back expenses," which are the moving expenses incurred if you have to temporarily move your tenant out of the home to make repairs.

As another example, Allstate's landlord insurance policy usually won't cover costs associated with vandalism unless you add the optional vandalism rider. If you rent out a property in an area prone to petty crime, this rider may be more appropriate than for someone renting out a property in a low-crime area.

Here are other optional riders you can add to your landlord insurance policy:

  • Building Code Coverage: If your area's building codes have changed since your property was built, and the home is damaged and in need of repair, you'll probably be required to meet the current codes. This covers the additional cost of making required renovations.
  • Non-Occupied Dwelling Endorsement: If your property is vacant for more than 30 days, your landlord insurance company may deny coverage for any claims that arise until it is re-occupied. This optional endorsement extends your coverage during that period.
  • Heating or Air Conditioning Loss Reimbursement: This coverage reimburses you for any payments you make to your tenants due to the mechanical breakdown of heating or cooling systems.

Landlord Insurance vs. Renters Insurance

While your landlord insurance policy covers personal property you leave in your rental unit for tenant use, the policy won't provide reimbursement for your tenant’s own property. To insure their belongings and any damage they cause, and to protect you from higher premiums and liability, you should require your tenants to take out their own renters insurance policy upon signing the lease. You can specify this requirement in the lease and to have the renter name you, the landlord, as an additional insured person on their policy. The lease should include a non-negotiable hold-harmless, or indemnity, clause that shields the landlord from any damage to or injury incurred on the property.

Do I Need Any Other Insurance for a Rental Property?

In addition to your landlord insurance policy, consider these other types of coverage for your property.

Personal Umbrella Policy

All insurance policies have dollar limits to the coverage they provide. For example, if old wiring causes a fire and your entire apartment building is destroyed, the related costs could exceed your landlord policy's liability coverage. In this situation, a personal umbrella policy would provide coverage beyond your landlord insurance policy's limits.

Liability coverage is usually sold in increments of $1 million. The more assets you have and the more exposed to liability you are, the more coverage you should buy. You should think particularly hard about purchasing umbrella coverage if you own multiple rental properties, since you are at higher risk of being sued, and have more assets to protect.

Flood Insurance

Flooding is one of the most common and expensive perils to property, but landlord, homeowners, and renters insurance policies typically exclude flood damage. Whether it's legally required depends on your state and your region's flood risk. However, flood damage can occur even if you don't live in an official at-risk area. Evaluate your property's flood risk to determine whether you need flood insurance.

Though the National Flood Insurance Program (NFIP) regulates flood insurance costs for the entire country, you can only purchase coverage through an independent insurance company. Ask your landlord insurance agent if they offer flood insurance. If they don't, the NFIP can provide a list of participating insurers. Finally, take any necessary steps to protect your property from flooding.

Earthquake Insurance

Landlord insurance policies also typically exclude damage due to earthquakes. However, according to the U.S. Geological Survey, 42 states are considered at risk of earthquakes. If you have a history of earthquakes in your area, or you want to be protected from earthquake damage in the future, consider purchasing an earthquake insurance policy.

Consider Creating an LLC

By putting your rental property into a Limited Liability Corporation (LLC), you can limit the exposure to your personal assets if a renter or other individual sues for damages that occurred on your rental property.

What's the Best Company for Landlord Insurance?

Most major homeowners insurance companies, such as GEICO, Nationwide and Liberty Mutual, offer landlord insurance policies. Start with the company that currently provides your homeowners insurance policy, since you may be eligible for a discount. Once you've received their quote, compare prices from multiple companies to find the best rates for your specific region.

What Final Steps Do I Need to Take Before Renting Out My Property?

Before renting out your property, review these steps to limit your risk:

  • Clean, repair and prep the property to reduce the likelihood of injuries and subsequent claims.
  • Work with an attorney to carefully word your lease language in order to provide maximum protection.
  • Purchase the maximum amount of landlord insurance that you can reasonably afford; add any necessary endorsements to make sure you're adequately protected.
  • Require your renter to provide proof of renters insurance before signing the lease.
  • Consider putting your rental property into an LLC in order to insulate your personal assets in case a renter files a lawsuit against you.

Daniel is a former Staff Writer at ValuePenguin, covering insurance, retirement and other personal finance topics. He previously wrote about compliance and best practices for K-12 school districts at Frontline Education.

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.