Solved! I’m a landlord — Do I need landlord insurance?

Question: I just moved into a new home and want to start renting out my old house. I currently have a homeowners insurance policy. Will this continue to cover my house now that it is a rental property or do I need landlord insurance?

A: Owning a rental property is a great way to earn extra income. Homeowners who decide to rent out their properties may wonder, “Do I need landlord insurance or will a homeowner’s insurance policy suffice?” Generally, a landlord will need to purchase a landlord’s insurance policy to cover the property for rent because a homeowners insurance policy does not provide the same type of coverage as a landlord insurance policy.

Landlord coverage protects the property owner if the home suffers damage from a list of specified perils. It can also provide financial protection if the landlord is found legally liable in certain situations.

Homeowners insurance typically only covers a home that is owner-occupied, so rental property owners will want to get landlord insurance coverage.

Homeowners insurance helps protect policyholders from unexpected expenses as a result of damage to their home caused by a covered event. As an example, if a wind storm knocks a tree branch onto the roof of a home, creating a hole and causing damage to the home’s contents, homeowners insurance typically covers the cost of repairing the damage, replacing damaged contents, and cleanup costs, minus the deductible. If the same scenario occurs in a rental property, the landlord’s insurance policy will pay to repair the damage to the home, but the tenant’s personal property will not be covered by the landlord’s policy.

Before renting out their property, landlords may want to look into the best landlord insurance companies. Comparing landlord rental insurance quotes from different carriers makes it easy for a rental property owner to find the best combination of coverage and affordability.

Landlord insurance offers coverage for property damage caused by a covered event.

When comparing landlord insurance versus homeowners insurance, customers will see that both types of policies offer residential coverage for the insured property. Dwelling coverage refers to the physical structure of the rental building. If the building suffers damage from a covered event, landlord insurance helps cover the cost of repairs.

As an example, if a burst pipe in a rental home causes flooding in one of the bathrooms and damages the floors and walls, the landlord’s insurance policy will usually help pay for water cleanup and repairs to the damaged floors and walls.

Some landlord insurance policies include coverage for other structures. This protection extends from the dwelling to detached structures on the property, such as a garden shed, fence or detached garage.

Although some insurers may offer actual cash value cover, it is recommended that landlords take out replacement cost cover.

Similar to how a homeowners insurance policy works, a landlord insurance policy will pay out claims in one of two ways: actual cash value or replacement cost.

• Actual Cash Value: Actual cash value coverage calculates the cost to repair or restore a rental property at its current value, minus depreciation (which takes into account the home’s age, condition, etc.).
• Replacement cost: Replacement cost coverage covers the cost of repairing or restoring the property at today’s prices, excluding depreciation.

It is often suggested that landlords choose replacement cost coverage for their rental properties. While replacement cost coverage will usually cost more up front, it can prevent a policyholder from paying a significant amount out of pocket in the event of a claim.

For example, if a fire destroys an older rental property, a policyholder with an actual cash value policy will receive a claim payout that takes into account the home’s long-term depreciation. If the landlord has replacement cost coverage in this type of scenario, the insurance company will pay to repair or rebuild the home at today’s prices and depreciation will not be a consideration.

Landlord insurance can provide coverage for lost rental income if the property is uninhabitable and tenants must move out.

Many events covered by landlord insurance could potentially render a rental unit uninhabitable. Fire and water damage, for example, may require several weeks, months or more to mitigate. Tenants cannot live in the property during this time and the landlord will not receive rent payments.

Landlord insurance may offer lost rental income coverage if the property is uninhabitable due to covered damage. However, this coverage is usually limited to situations where the tenant must vacate the property. There are other types of coverage that a landlord can consider purchasing that can provide protection if the tenant falls behind on their payments. For this reason, landlords will want to check their landlord insurance policies carefully to understand what is and isn’t covered as it relates to landlord rental insurance.

Your landlord’s insurance policy will also offer liability coverage for medical or legal expenses.

Incidents are unpredictable and sometimes unavoidable. When a landlord rents their property to a tenant, they may want to make sure they have the necessary rental liability insurance coverage in the event of the landlord’s liabilities. This coverage helps protect the landlord if a tenant, guest, or even a third-party contractor is injured on the property. If an accident occurs, landlord’s liability insurance can help cover the injured party’s medical expenses and can also provide financial protection to the landlord if the injured party decides to take legal action.

For example, if a tenant breaks a leg while at the property by falling through a rotten deck board, landlord liability insurance for rental properties can help pay for the injured tenant’s medical bills as well as the costs of potential lawsuits against the landlord related to the accident.

Depending on their needs, landlords may want to opt for additional coverage, such as guaranteed income insurance, flood insurance, emergency coverage or additional construction costs.

Landlords can usually customize their landlord insurance to suit their individual needs. Many landlords add additional coverage to tailor their policies to the unique risks their property faces. For example, a standard landlord’s insurance policy does not cover flood-related damage. Landlords may choose to purchase additional flood insurance for their rental property if the property is located in an area at high risk of flooding.

Other coverage options for landlords include:

• Guaranteed Income Insurance: This protection helps cover monthly rental fees if the tenant misses a payment or is unable to pay the full amount.
• Emergency coverage: Emergency cover can help cover the cost of a landlord traveling to their property and fixing any emergency problems their tenant has, such as a leaking appliance.
• Additional construction costs: After damage, such as a fire or burst pipe, the rental property may need additional repairs to bring it back up to code. Covering additional construction costs helps pay for these additional repairs.

Landlord insurance premiums are usually slightly higher than homeowners insurance premiums because rental properties are more prone to damage.

The average cost of landlord insurance is usually higher than the cost of insuring the property with homeowners insurance. In general, rental properties are more prone to damage than an owner-occupied home because renters often do not feel a sense of ownership when they rent a home. This can cause them to skip general maintenance or let small problems turn into big ones before contacting their landlord.

Additionally, the cost of landlord insurance can vary by property. Several factors go into determining landlord insurance rates, including:

• Location of the property
• Unit or home size
• Property value
• Age of the home
• Long-term versus short-term tenants
• Deductible and coverage amount
• Additional coatings

Premiums may be even higher for a short-term rental property than for a property with long-term tenants.

With the growth of private vacation rentals, more homeowners are renting out their vacation properties as short-term rentals. These homeowners may be surprised to learn that landlord insurance often costs more for short-term rentals than long-term ones.

With a long-term lease, where the same tenant can rent a property for months or years, the risk is lower. Long-term renters often want their home to remain in good condition. This makes them more likely to contact their landlord about maintenance issues or property issues.

Short-term rentals, such as one-week vacation rentals, involve more tenants moving in and out in a short period of time. More tenants means more chances of damage to the property. Also, short-term renters are often not in the property long enough to notice or report problems.

As an example, a landlord who owns a beachfront condo and rents it out short-term may have several different families come to stay at the property for a month. Since each family will only be in the home for about a week, it’s likely that none of them will notice a leak under the sink. Over time, a leak can turn into a catastrophic failure and lead to water damage, but the landlord may not know until it’s too late.

Since landlord insurance does not cover a tenant’s personal belongings, property owners may consider requiring tenants to carry insurance as part of their rental agreement.

Renters insurance is not required by law, but landlords may choose to require it from their tenants. In most cases, requiring renters insurance is a good idea for both the landlord and the tenant.

There are many reasons for renters to get renters insurance to protect their belongings. Landlord insurance only protects the landlord; renters insurance helps protect the renter. Renters usually need their own policy to protect their belongings such as furniture and clothing.

Also, requiring renters insurance for renters can be helpful for landlords. A tenant willing to purchase renter’s insurance shows they are willing to work with the landlord. It can also show responsibility, meaning the tenant can take better care of the property than someone who refuses to protect their own belongings. Landlords can offer their tenants one of the best renters insurance companies, like Lemonade.