Landlord insurance is a type of property insurance designed to protect rental property owners' assets. Unlike typical homeowner's insurance, which exclusively protects owner-occupied homes, landlord insurance assists landlords in defending the buildings and land they own and lease from various risks. While landlord insurance plans vary, most cover property damage, rental revenue loss when a property is unusable, and general liability.
Why Do You Need Landlord Insurance?
Landlord insurance can protect your assets and help in critical situations. For example, if a large appliance breaks down, someone gets hurt on the property (through no fault of the tenant), your home is damaged or destroyed by a natural disaster, or your property is robbed. Consider what your property’s precise needs are before you start comparing prices.
Related: Becoming a Landlord? Pros & Cons You Should Know
source: TenantCloud Landlord Community
Tenants can sometimes cause expensive damage making insurance coverage essential. If you pay landlord and umbrella insurance fees as a business expense, you may be eligible for tax benefits, making the cost even cheaper.
The Fundamentals of Landlord Insurance
Other types of homeowner's insurance frequently do not cover rental business conditions, but landlord insurance does. Since it is a business owner's policy, it also covers damage to your rental property's fixtures and the building's physical structure. This coverage often includes the items you own that are appropriately stored outside—on rental property—and things that are left in the living area.
For instance, if you place a new lawnmower in the garage or if your rental comes with equipment in the kitchen, these goods would be insured and safeguarded. Your home's structure, as well as any unattached buildings like a shed, is covered by landlord property insurance.
Learn more about what landlord insurance may cover.
Dwelling
Dwelling contributes to the cost of repairing the harm caused to your rental property by things like wind, hail, fire, smoke, and lightning. Detached buildings are insured at 10% of your total dwelling coverage.
Be aware that homeowners’ and landlords’ insurance cover the same risks. Landlord insurance endorsements have fewer coverage options and provide extensive property coverage.
Personal Property
This insurance covers personal belongings that are necessary components of your rental property, such as your lawnmower and air conditioner, but excludes items like clothing or furniture you left behind. Additionally, tenant items are not covered by a landlord's insurance; they must obtain a renter's insurance policy to ensure coverage of their belongings.
Related: How to Be a Landlord in 2022: Uncomfortable Truths You Need to Know
Income Loss
Losses from rental revenue during repairs are covered by landlord insurance (usually after a natural cataclysm or disaster). A home insurance policy does not provide this coverage since it is irrelevant to homeowners.
Cost of Landlord Insurance vs Homeowners
The average cost of house insurance in the United States is $1,899 per year or $158 monthly. However, landlord insurance is sometimes roughly 25% more expensive than home insurance because of the danger of liability and damage from renters. But it's hard to give specifics because there isn't much known about how much landlord insurance usually costs.
Important: the more comprehensive the coverage, the higher the cost of landlord insurance. The rate will also increase if extras like "loss rental revenue" coverage are included.
Main Types of Landlord Insurance Coverage
There are several types of landlord insurance and two distinct types of payments. Dwelling policies, which include all kinds of landlord insurance, can be put into three categories:
- DP-1: This is the simplest form of protection. It covers relatively frequent incidents, such as fires and vandalism.
- DP-2: This protection is all-around and covers more substantial (and unlikely) harm like specified risks, such as damage caused by hail, fire, or vandalism. "Provision for collision" is often covered. It includes repairs, for instance, if a vehicle strikes your building.
- DP-3: is the most comprehensive of all landlord insurance. A "special form" or an "open peril insurance" are other names for DP-3 landlord insurance. In general, this policy covers all occurrences except those expressly excluded.
Factors in Calculating Landlord Insurance Cost
First, consider the number and type of units you own. The initial cost of your coverage may vary depending on how many units you intend to cover and the payout method you select.
House Square Footage
The base policy will be decided by the size of the property and any extra construction because larger homes have more volume to repair or replace. Smaller properties will need less insurance, while larger properties will need more, and the prices will change proportionately.
Home Value
Because they are more expensive to repair or replace, valuable homes are more expensive to insure.
Home Construction
Older homes are a little harder to repair because repairs might necessitate bringing older homes up to the current code, which raises costs. They may also pose a fire danger because of old, dry wood and insulation in their walls, and outdated electrical equipment. Making older properties have higher insurance costs.
Tenancy
Long-term residents with one-year leases imply stability and a customer who is likely to continue paying rent and taking good care of the property. A string of month-to-month leases for short periods suggests that tenants are less involved in the home and more prone to cause damage, which raises insurance prices.
Related: Tenant Screening Process: Main Ways to Save Your Time and Money
Environmental Risk
Areas susceptible to natural disasters like tornadoes or hurricanes are considered more dangerous to insure since providers don’t want to lose money. Large-scale disasters cause hundreds or thousands of homes to be damaged and are extremely expensive for insurance providers. As a result, insurance policy premiums in these places will probably be more costly than in lower-risk areas.
Actual Cash Value vs Replacement Cost
Different coverage choices for landlords and other forms of property insurance, such as commercial property insurance for businesses, include replacement cost insurance and actual cash value insurance.
Replacement Cost insurance is frequently the default choice, but you can request to select from these alternatives. Replacement cost insurance has a higher payout in the event of loss or theft, but it also has higher premium expenses.
Actual Cash Value insurance offers lower payouts but lower premium costs.
Actual cash value insurance only covers the depreciated value of your possessions, in contrast to replacement cost insurance, which covers the replacement cost of your belongings. Replacement cost insurance allows you to replace your possessions.
Extra Landlord Insurance Coverages
For even more security, landlords can choose to increase their insurance policy’s extra coverage.
- Vandalism – insurance will cover expenses for repairing or replacing broken things. Coverage works only for those houses that haven’t been empty or uninhabited for more than 90 consecutive days.
- Robberies – insurance includes charges for any required repairs or replacements, in addition to items utilized for your rental property, in the event of a break-in. Coverage only applies to homes that haven’t been empty for more than 90 consecutive days, and have clear signs of forced entry.
- Rental Properties under Construction – insurance protects the house before a tenant moves in if you’re remodeling or constructing a new rental property.
- Building Codes – insurance helps pay for extra expenses associated with repairs required following a covered loss, such as adhering to any building rules, ordinances, or laws governing construction, reconstruction, maintenance, repair, or destruction of your rental property.
Questions to Ask About Landlord Insurance
Does Landlord Insurance Cover Water Damage?
The landlord's insurance often covers water damage unless it is caused by carelessness. The policy covers unexpected and unavoidable occurrences, such as a busted pipe. The leak won’t be covered if it persists for several months without being fixed.
Do I Have to Buy Renters Insurance Also?
Yes. To limit possible responsibility, many landlords do mandate renters’ insurance. The landlord can be responsible for paying if someone is injured and the renter doesn't have insurance.
source: TenantCloud Landlord Community
By collaborating with Assurant, TenantCloud offers landlords a program that makes it simple to help safeguard rental, tenant’s house, and all the priceless items. Landlords may now assist their tenants by mandating renters’ insurance while they are tenants. It protects their possessions and landlords' assets for affordable monthly payments starting at $16 (depending on the state).
What Does Landlord Insurance Not Cover?
A landlord insurance policy does not typically cover the following:
- A tenant’s personal belongings. Landlord insurance only protects your property.
- Wear and tear alongside general maintenance. Landlord insurance does not cover property damage brought on by poor upkeep or everyday wear and tear. Landlords are responsible for performing routine maintenance on their houses.
- Pest infestations are not covered since they are considered avoidable with routine daily maintenance.
- Shared property. Since the property is technically not non-owner-occupied, you could not be eligible for landlord insurance if you live in a shared residence and rent a spare room.
- Landlord insurance, like homeowners’ insurance, does not cover natural catastrophes like earthquakes and floods. You may, however, get separate flood and earthquake insurance plans for the rental property.
source: TenantCloud Landlord Community
How Much Does Landlord Insurance Cost?
The price of landlord insurance varies by region. Many areas encounter particular difficulties that might give rise to claims, for example, regions where storms and fires are significant. It also depends on the property’s age and size.
Are There Any Tax Deductions for Landlord Insurance?
As company owners, landlords can deduct the cost of premiums for landlord building insurance from their taxes because it is an expense that is directly tied to the business.
Can Landlords Lower Insurance Costs?
It is possible to reduce insurance costs by holding numerous policies for properties while combining your vehicle and home insurance with your landlord's insurance.
source: TenantCloud Landlord Community
Related: Top Reasons Not to Return a Tenant's Security Deposit
Final thoughts
When you rent out your property for a prolonged period or rent to tenants while you aren't there, it is essential to safeguard your house with the proper insurance. Renting out a property increases your risk for liability and damage; therefore, your insurance will cost more, but you'll have more coverage.
