Landlord Insurance Quick Guide: Landlord Insurance vs Homeowners Insurance

Are you learning about landlord insurance for the first time or brushing up on the fundamentals? Our comprehensive landlord insurance quick guide covers everything landlord insurance-related.

Being a landlord can be demanding. It is more than just owning a house. There are numerous tasks that must be completed. Everything from carefully selecting tenant applicants to building maintenance and renovations, as well as organizing paperwork, managing rent payments, and tracking income and expenses, is on the list of things to think about.

Furthermore, even with the best property management, things can go wrong. This is why it is critical to find the right policy and insurance provider for your landlord insurance. The proper insurance will protect you from any property damage or accidents that may occur.

Landlord Insurance Quick Guide

Landlords who are renting out a residential property (house, vacation cottage, apartment) for the first time may believe that their homeowners insurance will cover all costs in the event of a natural disaster, accident, or other damaging events. That’s a rookie error.

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What is Landlord Insurance?

Landlord insurance is a policy designed to protect property owners in the event of damage to a rental property.

What does this mean exactly? Landlord insurance quick guide-Here’s an illustration.

Annette owns and rents out an apartment building. One of her tenants inadvertently starts a fire in their apartment, causing damage to that unit as well as a few others.

Anichebe’s landlord insurance policy would cover the costs of repairing or rebuilding the units to make them habitable again, but it would not cover the loss of her tenants’ personal property. If someone is injured in this fire and wants Annette to pay for their medical bills, her landlord insurance would cover the legal fees and medical expenses.

Why You Need Landlord Insurance: Landlord Insurance Quick Guide

Your policy most likely only covers owner-occupied residences. When you start renting out your property to others, the coverage ends. And, because renters are generally not held liable when large appliance malfunctions, a person is injured on the property (through no fault of the tenant), a forest fire damages or destroys your home, or burglars simply empty the place, you may be left hanging for these or other misfortunes brought on by humans or Mother Nature. Landlord Insurance Quick Guide!

Here is where landlord insurance comes into play. These policies come in a variety of shapes and sizes. Consider what you need to specifically address and protect against in your rental property before you begin price shopping.

What Does Landlord Insurance Cover?

A good, comprehensive landlord insurance policy will include three key safeguards:

• Property Damage: This coverage protects the real estate or furnishings in the event of a natural disaster, fire, electric/gas malfunction, earthquake, vandalism, or irresponsible tenants. If at all possible, try to obtain a policy that provides replacement cost rather than actual cash value (especially if fixtures and furnishings are old) or a predetermined lump sum of cash.
• Lost Rental Income/Rental Default Insurance: If your property becomes completely uninhabitable (due to severe mold, termites, a rat infestation, or a sinkhole), this feature provides temporary rental reimbursement to cover the rent money you’d otherwise receive if tenants could occupy the property.
• Liability protection: This covers the medical or legal costs that may arise if a tenant or visitor is injured as a result of a property maintenance issue (such as icy walkways, architectural collapse, or an out-of-control hive of bees).

Different packages may also be referred to by underwriters as DP-1, DP-2, or DP-3 (DP stands for “dwelling property”). Each of these denotes a different level of coverage, with DP-1 being the most basic and DP-3 being the most extensive.

Additional Coverage: Landlord Insurance Quick Guide

There are several common riders that can be included with landlord insurance policies. They aren’t as important as the key provisions mentioned above, but they could come in handy and save you money in the long run. They include the following:

• Flood Insurance: Because many landlord insurance policies do not cover flood damage caused by natural disasters or municipal plumbing, this coverage should be added if the property is in a flood-prone zone.
• Guaranteed Income Insurance: This protects the landlord if a tenant falls behind on rent for one month (or fails to pay at all).
• Emergency Coverage: If a tenant calls you out to fix something, such as a leaking dishwasher, or if they are accidentally locked out of the house, this feature can help cover some or all of the costs you incurred to travel to the property and resolve the issue.
• Additional Construction Expenses: Expenses incurred as a result of having to bring a building up to code after it has been damaged.

What Is the Difference Between Homeowner and Landlord Insurance?

A homeowners insurance policy is required if the property is your primary residence. Otherwise, if you plan to rent it out, you’ll need to obtain landlord insurance (also known as rental property insurance) from an insurance company. However, here is the difference between the two of them:

• Homeowners Insurance: This insurance only applies to your primary residence and covers the structure as well as personal property damage, liability, and a few other things. Also, see Incidental Occupancy.
• Landlords Insurance: Specifically designed for property owners who intend to rent out a family home, apartment, or condo for an extended period of time, it covers damages caused by events such as fires, burst pipes, or natural disasters. Landlord insurance also provides liability protection in the event that a tenant or guest sues and the property owner is required to pay legal fees or medical expenses.

If you want to learn more about the distinction between landlord and homeowners insurance. A landlord insurance policy for the same property typically costs about 25% more than a homeowners insurance policy.

When compared to homeowner insurance, this may appear to be a significant price increase. Is it worthwhile? You will make your decision after weighing the benefits and drawbacks.

How Much Does Landlord Insurance Cost?

According to Policygenius, the average cost of homeowners insurance in July 2022 is $1,899, though prices can vary greatly depending on where you live, the age of your home, and other factors. However, because rental properties are more prone to damage and incident, you can expect to pay about 15% more for landlord insurance on the same property, according to the free real estate investment tracking site Stessa.com.

The price of your premiums is also inversely related to the length of time the property is in service. For example, according to Houselogic.com, an informational website run by National Association of Realtors members, expect to pay nearly double in annual premiums if you rent out your home for only 12 weeks rather than the entire year.

Short-term tenants, on the other hand, are less likely to notice (or even mention) maintenance issues. They may be more careless, or they may not understand the layout of the house and where the plumbing, load-bearing supports, and electrical wiring are located. All of this increases the likelihood of problems and the insurer’s risk.

When shopping for policies, make sure to inquire about bundle options with your homeowners insurance provider. You may be eligible for a discount if you purchase both homeowners and landlord insurance from the same company.

Do I Need to Have Landlord Insurance?

While landlord insurance is not required by law, it can help protect you from catastrophic losses that may occur while managing a property. If a tornado or fire destroys your property, you will have to pay the full cost of rebuilding it out of pocket.

You would only have to pay a small deductible if you had insurance. If you add it to your policy, your insurance may even provide additional coverage for other events such as vandalism or theft (Vandalism and theft are known as human perils)

Landlord insurance is required for long-term rentals of more than 30 days. Instead of landlord insurance, you’ll need a commercial, homeshare, or vacation rental policy if you want to do short-term rentals for Airbnb or VRBO.

KEY LESSONS

• Homeowners insurance does not cover a dwelling that is not occupied by the owner, which is why landlord insurance is required.
• Property damage, rental income lost due to a property’s temporary inhabitability, and liability protection are the core coverages of landlord insurance.
• Additional riders can be purchased to cover income lost when a tenant fails to make a rent payment, flood damage, expenses incurred when bringing a building up to code after it has been damaged, and more.

In conclusion

Examine your homeowners insurance policy before renting out a piece of property. Don’t expect it to cover damages and liabilities while you’re not residing there. Landlord insurance is required if you want to protect your home while also renting it out.

You might also suggest that your tenants get renter’s insurance so that their personal belongings are covered in the event of an accident.

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