Is Landlord Insurance a Substitute for Homeowners Insurance

Due to the restrictions on what makes a home eligible for homeowners insurance vs what makes it eligible landlord insurance, you would generally not be able to ever have both at the same time. The catch is that, due to the higher risk that rental properties have, the insurance coverage you receive with a standard landlord insurance policy is less broad than homeowners insurance.

Both types of insurance will provide liability coverage for the policyholder, and both will cover property damage. The basic levels of landlord insurance (often referred to as Dwelling Fire Form 1 (DP-1 Policy) and Dwelling Fire Form 2 (DP-2 Policy) cover less than the most common type of homeowners insurance, but if you opt for the highest level of protection by purchasing a Dwelling Fire Form 3 (DP-3 Policy), the coverage is very similar to homeowners insurance at that point.

Landlord v Homeowners Insurance

You may be able to get some protection from your homeowners policy if you plan on temporarily renting out your home for one event (such as a big sporting event) in the near future. In the event your home is rented out occasionally, your homeowners insurance policy might help cover damage caused by certain risks, such as fire or burglary. You may find, however, that you cannot obtain homeowners insurance if you don't live in the house.

You should talk with one of Steadily's specialized insurance agents to find out which types of scenarios are covered by homeowners insurance while you rent out your home to tenants.

If you plan to rent out your single-family home (or a second home/investment property) on an ongoing basis, then you need landlord insurance, since a homeowners policy won't protect you in this situation.

Key differences in Landlord Insurance and Homeowners Insurance

Occupied Property

You're only eligible for homeowners insurance if you use that property as your primary residence. Similarly, you are generally only eligible for landlord insurance if you primarily rent the property to other individuals. The best way to determine which type of insurance you're eligible for would be to discuss with your current insurance company.

Personal Property Coverage

Homeowners insurance covers damage to your personal property in the home. In the event of a break-in, your personal belongings would be covered and your homeowner's insurance would pay for the replacement cost of those items. Most landlord insurance policies do not consider the personal property a covered loss unless it is for an item used to maintain the property.

Good to Know: In insurance terminology, there are two terms used frequently, replacement costs and functional replacement costs. Functional replacement is when the insurance company will replace a damaged item with another item that is lower in value but has the same function. (If you have a homeowners policy then see Equipment Breakdown Coverage Form)

Liability Coverage

Landlord insurance will only provide liability protection when it's related to the rental property. For example, if a tenant is injured on the property and sues you for damages, your landlord insurance will cover the legal fees and potential medical expenses. Homeowners' insurance policies will provide liability coverage for you and other household members, even if the accident does not occur in your home.

Rental Income Protection

Many insurance companies allow you to add additional coverage to your landlord insurance policy to protect against the loss of rental income in the event that your rental property is made uninhabitable or a tenant unexpectedly moves out. Homeowners insurance policies do not provide

Landlord Insurance Cost

Because of the additional risk associated with renting out a property, landlord insurance tends to be 15%-20% more expensive than homeowners insurance.

Does Landlord Insurance Cost More Than Homeowners Insurance?

Yes. According to the Insurance Information Institute, a landlord insurance policy costs about 25% more than a homeowners insurance policy. The reason for the higher cost for revolves around risk factors for who is occupying the home. Insurance providers often see lower average claim amounts and fewer claims for owner-occupied homes when compared to tenant-occupied rental properties. The risks are different — and the insurer won’t cover claims because the policy doesn’t match the real risks. Insuring your investment real estate follows the same logic. Even for a single-family home, you lived in previously, if you decide to rent the home out, the risks change.

Differences in liability insurance coverage can play a role in the cost of landlord insurance as well. Often, landlord insurance policies offer more liability coverage than a standard homeowners insurance policy, driving the cost of some landlord policies higher.

A helpful way to view the difference between homeowners insurance cost and landlord insurance cost is to think of your homeowner’s insurance policy earning a discount because the property is your primary residence. Your insurer has a greater assurance that you’ll be on guard against risks and take precautions to prevent claims if the property is owner-occupied.

However, cost is only one consideration when choosing coverage for a rental property. To make certain you're covered properly in case of a loss, you'll want to make sure your investment property is properly insured.