If you rent out your home, condo, apartment or another property to others — congratulations, you’re a landlord! With that comes the responsibility of landlord insurance. If something were to happen to that property, or to someone while at that property, you could be liable — and your regular homeowners policy will not cover you.
Your investment property has value that you’ll need to protect because your tenants’ renters insurance covers only their belongings. Anything from a wind storm that knocks out the gutters to a lawsuit from someone who falls on your icy sidewalk could cost you thousands of dollars if you don’t have rental property insurance.
In this article, we’ll be looking mainly at long-term landlords who do not live on the rental site. If you are a short-term landlord or rent out part of your property for Airbnb or another similar business, you may be covered by your homeowners insurance if you live on site. In those cases, you may also need to purchase a rider for your policy to cover the rentals — sometimes call home sharing coverage. Ask your agent if you’re not sure.
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What does landlord insurance cover?
There are two key types of coverage you need on your investment property: liability coverage and property coverage:
- Liability coverage will cover you if your tenant or someone they have invited onto the property is injured and it is determined that you are at fault. For example, if someone slipped on the icy front walk because you had forgotten to put out ice melt, this coverage will help pay for damages. Liability coverage will help with legal fees if they should sue you as well as for their medical costs if they are injured.
- Property, or dwelling, coverage, as the name suggests, covers any damage to your rental properties from a named peril. Common named perils include fire, wind, hail and snow storms. This coverage generally extends to any large appliances that you own on the property, such as a washer and dryer.
Another type of insurance that comes standard on some policies but is optional on others is loss of rental income. This will pay you for the lost rent for a certain amount of time if your property can’t be inhabited because of a named peril.
Additional coverage options to consider
Optional coverages vary from company to company, but there are a few common ones to consider:
- Building code coverage: Your town’s property codes may have changed since your house was built, especially if it’s an older house. If there is damage from a named peril and it will be a significant cost to bring it up to code, this coverage can help. This is especially useful for electrical and plumbing systems.
- Other structure coverage: If the property includes other buildings or features such as a detached garage, shed or fence, this will cover damage to them. It is sometimes included as part of the basic policy, and sometimes as an additional rider.
- Vandalism: If your house is in a neighborhood where vandalism is common, it’s worth adding this as a rider, or endorsement, to your policy.
What’s usually not covered?
It’s just as important to know what’s not covered by your policy as it is to know what is. Here are a few things that you’ll still be on the hook for even if you have landlord insurance:
- Basic maintenance: It’s your responsibility to keep the systems of your house operational. Things like your kitchen sink leaking are up to you to fix. If there is extensive damage to the hardwood floors because of that leak, though, you may be covered. It’s worth a call to your agent to find out.
- Flooding: Flooding is generally not covered in regular policies. It’s probably a good idea to know if your rental property is in a flood plain. The Federal Emergency Management Agency (FEMA) has a flood map service center that allows you to find out by typing in your rental property’s address. Your landlord insurance cost may go up if you are because you’ll want to get flood insurance either through the government or via your insurer, if they sell National Flood Insurance Program coverage.
- Sewer backups: Some policies will cover sewer issues, but only if the blockage occurs to pipes on your property. If the clog is happening at the street level, you wouldn’t be covered. Talk to your agent about what is covered.
- Earthquakes: This is another example of a peril that is not generally covered in basic homeowners or landlord insurance policies. If you live in an area that has been known to have earthquakes, such as parts of California, consider adding an earthquake rider to your policy.
- Your tenants’ personal belongings: Anything your tenant owns, from clothing to electronics to the curtains they hang in the windows, is excluded from rental property insurance. In fact, it’s a good idea to suggest (or even require) that they carry reasonably priced renters insurance. Even college students or seniors on a fixed income can generally afford a policy that will give them peace of mind if a disaster happens.
How much does landlord insurance cost?
Unfortunately, landlord insurance policies can be pricey. They generally run about 25% more than a homeowner policy for the same address. Why? Insurers reason that tenants won’t care as well for the property as the homeowner would, and so the price goes up in anticipation of increased claims.
You may get a break on price by bundling your landlord policy with homeowner or auto policies together with one company. It never hurts to ask your agent if there’s anything else you can do to cut costs, as well.
What if I live at the property I rent out?
If you regularly rent out space in your primary home — say, a basement apartment or in-law apartment — you probably don’t need landlord insurance. That’s also true if you rent out your primary residence occasionally through Airbnb or a similar company. These short-term rental situations are becoming popular enough that many homeowners insurance policies allow you to purchase a rider for Airbnb use. Airbnb itself provides host protection insurance, but this doesn’t cover loss of earnings or intentional, as opposed to accidental, damage. It’s a good idea to consider additional coverage with your own insurer.
If you live on the property you’re renting out, the answer to the question of whether you need landlord insurance is: it depends. If, say, you’re going to be away for the summer so you rent out your basement to a friend for two months, your insurance company may make an exception and cover this time period, as long as you let them know.
On the other hand, if you regularly rent out that basement to students from the nearby college, your insurance company would probably consider it a business and therefore would not cover it under your homeowners policy. The solution? There are special policies geared toward hotels and bed and breakfasts that may work for you. As always, your agent can give you further advice.
The bottom line
Landlord insurance is not mandated by law in the U.S., but it’s a wise choice to invest in a solid, comprehensive policy if you have property that you’re using for long-term rental purposes. If you’re already happy with your homeowner policy insurer, they should be your first stop for landlord insurance, but don’t limit yourself: many of the top homeowner insurance companies also offer rental property insurance.
Talk to an agent about putting together a policy that contains the endorsements that are best for your specific location. If you have multiple rental units, you may want to review your policy with your lawyer, as well, to ensure that you are adequately covered in the event of a disaster.