The Ultimate Guide to Landlord Insurance in 2021

Learning about landlord insurance for the first time or just looking to brush up on the basics? We have you covered with our comprehensive 2021 landlord insurance guide to all things landlord insurance-related.

What’s the Difference Between Homeowner and Landlord Insurance?

If the property is your primary residence, you’ll need a homeowners insurance policy. Otherwise, if you’re renting it out, you’ll need to buy landlord insurance (sometimes called rental property insurance) from an insurance company.

  • Homeowners Insurance

    This insurance is only for your primary residence and covers the building and covers personal property damage, liability, and a few other things.
  • Landlord Insurance

    Specifically, for property owners who plan on renting out a family home, apartment, or condo for an extended period and covers damages for events such as fires, burst pipes, or some natural disasters. Landlord insurance will also provide liability protection if a tenant or guest sues, and the property owner needs to pay for legal fees or medical expenses.

What is Landlord Insurance?

Landlord Insurance is an insurance policy designed to cover property owners where there is damage to a property they rent out.

What exactly does that mean? Here’s an example.

Annette owns an apartment building she rents out to tenants. One of her tenants accidentally starts a fire in their apartment, resulting in damage to that unit and a few others.

Annette’s landlord insurance policy would help pay for the repairs or rebuilding needed to make those units inhabitable again, but would not cover the loss of her tenants’ personal property. If somebody is injured in this fire and wants Annette to pay for the medical fees, her landlord insurance would provide liability coverage for the resulting legal fees and medical expenses.

What is a Deductible?

In a landlord insurance policy, the deductible is the amount paid out-of-pocket by whoever the policy is before an insurance provider will pay any expenses. The deductible can vary depending on the property, occupancy of the property, and what type of damage it is.

For example, if Annette’s rental property catches on fire, she would need to cover her deductible before her insurance provider would cover the rest of the damages. If her deductible was $1,000 and the total cost of the damage was $10,000, she would pay for $1,000 out of pocket, and then her insurance would cover the other $9,000.

Infographic That Describes What Landlord Insurance Is What

Do I Need to Have Landlord Insurance?

While it’s not required by law, landlord insurance can help save you from catastrophic losses that may happen while managing a property. If a tornado or fire destroys your property, you would have to pay the property’s total cost out of pocket to rebuild it.

With insurance, you would only have to pay a small deductible. Your insurance can even provide additional coverage for other events, such as vandalism or theft, if you add it to your policy.

Landlord insurance applies to long-term rentals, periods over 30 days. If you want to do short-term rentals for Airbnb or VRBO, you’ll need a commercial, homeshare, or vacation rental policy instead of landlord insurance.

What are the Different Types of Landlord Insurance?

Your landlord insurance coverage depends on the type of insurance you select. The three most common types of landlord insurance are called “dwelling policies,” and as the numbers increase, the types of coverage expand.

  • Dwelling Policy 1: Very Limited Coverage

    Because the coverage is so limited, DP-1 policies are the cheapest choice and the least popular for landlords. DP-1 is a basic policy that lists ten specific causes that are covered.

If there is a claim stemming from one of the covered causes, the policy will reimburse the actual cash value (ACV), which is the depreciated rebuild value of the property. This means that the payment amount would be significantly less than the landlord’s cost to repair the damage, and the landlord would have to make up a large difference out of pocket.

The cause of damage or “perils” that the DP-1 covers are: Fire & Lightning, Internal Explosion & External Explosion, Windstorm & Hail, Riot & Civil Commotion, Smoke, Aircraft, Vehicles, Volcanic Explosion, Vandalism & Malicious Mischief

  • Dwelling Policy 2: Moderate Coverage

    The biggest difference between this policy and DP-1 is that DP-2 pays out the replacement cost value (RCV) instead of the depreciated cash value (ACV). This means that when the property is damaged, the policy will pay to restore the property to its original condition. This distinction between RCV and ACV is crucial and is often tens of thousands of dollars.

    DP-2 policies can include loss of income coverage. If tenants have to move out because of covered damage and the landlord stops earning rent, the policy can pay the landlord for the lost rent until the repairs are completed.

    Last, DP-2 covers all the perils from DP-1 and: Burglary Damage, Weight of Ice & Snow, Glass Breakage, Accidental Discharge or Overflow of Water or Steam, Falling Objects, Freezing of Pipes, Electrical Damage, Collapse, Tearing Apart, Cracking, Burning, Bulging
  • Dwelling Policy 3: Comprehensive Coverage

    This is the most common type of landlord insurance policy. DP-1 and DP-2 both name specific perils and deny claims resulting from any cause that is not explicitly listed as a covered peril.

DP-2 policies can include loss of income coverage. If tenants must move out because of covered damage and the landlord stops earning rent, the policy can pay the landlord for the lost rent until the repairs are completed. On the other hand, DP-3 is an “open peril” or “all-risk” policy and provides the broadest protection.

How do Homeowners and Landlord Insurance Policies Differ?

DP-3 landlord policies and homeowners policies provide similar base coverages:

  • Building: Covers the structure itself
  • Liability Insurance: Covers bodily and personal injury to someone else or damage to their property
  • Loss of use/Loss of rental income: Covers extra costs of living if you’re forced out of your home or replaces rental income if tenants are forced out by a loss
  • Personal property: Covers items in and around the home
  • Medical payments: Covers medical costs if a guest or tenant is injured on the property
  • Other structures: Covers unattached structures like sheds, garages, or swimming pool fences

Where homeowners and landlord policies differ, the most is on the amount of personal property coverage. A homeowners policy will typically cover up to 50% of the home’s insured value. A landlord policy will typically not offer any personal property coverage unless an additional premium is paid to cover appliances and furnishings.

Please note landlord insurance personal property coverage does not protect the tenants’ property. They’d need a renters insurance policy for that.

Also, the homeowners liability covers you for personal liability that’s non-business related. The landlord’s liability coverage only applies to losses related to the rental (insurers sometimes refer to this as premises liability). You would need separate business insurance for general liability protection.

Cost Comparison

A landlord insurance policy will typically cost about 25% more than a standard homeowners insurance policy would cost on the same property. Why does it cost more? Renters historically have a higher probability than homeowners of causing damage to a property that results in a claim, so insurance underwriters have adjusted the premiums to match the increased risk.

A few years ago, the average homeowner reported paying $1,192 for their policy, and the average landlord paid $1,478.

Optional Coverage

Depending on the state of your property, the occupancy of it, and the location, you may add some additional coverage to ensure your landlord insurance covers as much as it can. Below are some common coverage options we provide:

  • Burglary: Most landlord insurance policies will pay for any damage that occurs to the home during a break-in, such as broken windows, but will not cover the expenses of your stolen personal property. This coverage will cover the cost for stolen items used to maintain your property, such as a lawnmower. It’s important to note that burglary coverage will not protect a tenant’s personal belongings. For that, they’ll need renters insurance.
  • Vandalism: Vandalism is considered any intentional damage to your property by a tenant or other person. For example, if a tenant intentionally spray-paints the side of the house, your landlord insurance will consider this to be a covered loss if you’ve added vandalism coverage.
  • Under Construction Rental Property: If you are renovating your unoccupied rental units or building entirely new ones, you can buy additional coverage to protect the properties until they’re occupied.
  • Building Codes: Occasionally, you must repair or replace parts of your rental. City and county codes may require you to upgrade items such as wiring because the regulations have changed since your property was built. This type of coverage will protect against the costs you may incur from this.

Note: Flood insurance would require a separate policy.

We hope that this landlord insurance guide helped you wrap your head around the basics. Do you have any additional questions about what types of optional coverage may be right for you? Talk with one of our insurance agents and get a quote today!