Does landlord insurance cover tenant damage to your rental property?
The short answer is it depends. We recommend requiring renters insurance from your tenants to increase your protection.
If your tenant damages your rental property, your landlord insurance may cover the loss, but it depends on the type of damage and your coverages. Insurance companies categorize damage from tenants in three different ways:
Accidental damage
This is just what it sounds like. Anything the tenant does accidentally, such as starting a kitchen fire or breaking a window, falls in this category. Accidental fires will be covered under any type of landlord insurance; however, other damages will depend on your policy.
Your policy may also protect you if the damage leads to a loss of rental income. Your landlord insurance will not cover replacing your tenants' personal belongings. They'll need renters insurance to protect their stuff.
Intentional damage
This is also sometimes called malicious damage. This type of damage arises when a lousy tenant steals from your property or takes a sledgehammer to the walls. Your coverage here again depends on the insurer and the terms of your policy.
People often confuse this damage with vandalism, which is covered in most policies. But it's important to note that some policies treat intentional damage and vandalism differently.
Wear and tear
This means items such as stained carpets or scuffed floors, which are not covered by landlord insurance policies. A common way to cover this as a landlord is to use the tenant's security deposit on such damages.
What's covered and the amount of coverage depends on the type of landlord insurance policy. Like the different homeowner's insurance policies, there are three levels of landlord insurance policies. Insurers call them basic dwelling property insurance, sometimes called fire insurance (DP-1), broad dwelling property insurance (DP-2), and special dwelling landlord insurance (DP-3).
The amount or extent of the dwelling coverage and additional coverages increase with each plan. For example, you can upgrade to replacement cost versus actual cash value.
What else does landlord insurance cover?
The three most significant protections that landlord insurance grants are property damage coverage, liability coverage, and rental income protection:
Property damage
The insurance provider will pay for repair costs to your rental property for any covered losses. The standard list of covered perils includes:
- Fire
- Lightning
- Explosion
- Windstorm
- Hail
- Freezing pipes
- Water damage
- and several other less common reasons
However, please note landlord policies don't cover losses from floods and earthquakes. (You can buy flood insurance and earthquake insurance besides your landlord policy.)
Liability Insurance
Landlord liability insurance typically only gives coverage for claims related to your rental. Contrast it with your primary residence's homeowners policy, which covers you and your live-in family from claims resulting from accidents at home or elsewhere.
Rental Income Protection
Rental income protection, also called rental reimbursement or fair rental value, pays you the rent you'd miss from a tenant while your home gets repaired after a claim. Many policies cap the coverage at 12 months of lost rent.
Sometimes landlords think the policy covers the tenant's short-term living expenses while elsewhere. They would need a renters policy for that, and this issue adds one more reason many landlords require their tenants to buy renters insurance.
Plus, you can decrease the chance of the loss of your rental income and lower your liability. All these benefits prompt us to highly recommend you require your tenants to buy renters insurance.
Will renters insurance cover property damage?
Both tenants and landlords often have misconceptions about how renter's insurance works. Generally, renters insurance will only cover the tenants' possessions and liability if a guest sustains an injury. Renters insurance will typically not cover any destruction to the building, such as fire damages to the kitchen.
We recommend that you require your tenants to buy renters insurance, even if you have landlord insurance. Why? It reduces the chance that tenants and their guests will sue you for injuries or personal property damage. In the worst-case, when a tenant's carelessness injures a guest, a renters insurance policy may cover the legal fees that you and the tenant otherwise might've had to pay out of pocket.
Your landlord liability policy won't cover the loss if the tenant's carelessness damages the structure or injures someone. However, suppose your tenants have renters insurance. In that case, it will pay for their lost possessions and cover medical expenses for guest injuries, adding a layer of protection for both the tenant and you, the property owner.
Your tenants' renters insurance policy can also help prevent an increase in your premiums because it reduces the number of claims you need to file with your landlord insurance. Landlord insurance premiums may increase after a claim, or you can even lose the ability to renew if you have too many.
When tenants have renters insurance, they'll file a claim instead of you in many situations. For instance, if a tenants' guest slips and falls from a drink spilled in the kitchen, they can file a claim to pay their friend's medical expenses. Otherwise, you would end up the subject of a lawsuit and need to make a claim on your landlord policy.
Another example to see both policies in action, imagine that a tornado hits your rental and destroys part of the structure and your tenant's personal property. Your landlord insurance would cover repairing the property because natural disasters are a covered loss. Your tenant's renter insurance, not your landlord policy, would pay for their damaged personal property.
Free Resource: We wrote an Ultimate Guide to Landlord Insurance. It gives a nice overview of what landlord insurance is.
Do I really need to have landlord insurance and a renters insurance requirement?
Our recommendation is yes, and most insurance agents would agree. The best way to protect your property and income is to make sure you have a landlord insurance policy and require your tenants to have renters insurance. You'll reduce the risk of an uncovered loss and the likelihood that somebody comes after you for damages because of your tenants' carelessness.
Your tenant's renters insurance liability coverage may help you skip filing a claim. A good example arises when the renter's insurance covers medical payments for a tenant's guest's injuries.
Difference between homeowners insurance, renters insurance, and landlord insurance coverage for personal property
As a bit of a recap and aid before you get an insurance quote, you can break down each type of coverage this way:
- Homeowners insurance covers your personal property (not business property) anywhere in the world, but the protection comes from the policy on your primary residence.
- Renters insurance takes care of your tenants' possessions anywhere in the world and protects the renters' belongings at your property.
- Landlord insurance has no personal property coverage except for rental-related items left on-site such as a lawnmower or maintenance equipment.
- According to the Insurance Information Institute, insurance costs for landlord insurance is about 25% more expensive than home insurance, and renters insurance falls between $150 and $250 per year.