landlord reviewing landlord insurance agreement

Landlord insurance can be trickier than most types of insurance — it comes in different forms, has two types of payouts, and includes different types of coverage. That’s why we’ve created this easy guide to explain the landlord insurance lingo, describe the different policies, and simplify the decision-making process. Here’s what you need to know about landlord insurance.

What Is Landlord Insurance?

Landlord insurance is a coverage policy intended to protected landlords that rent out their home, condo, or apartment. If you currently have homeowners insurance, then this will only protect you until you begin renting out your house to tenants.

That’s why it’s advised to purchase landlord insurance right away to ensure you’re always protected when allowing tenants to rent your property.

What Does Landlord Insurance Cover?

Depending on the level of coverage you go with, a landlord insurance policy will usually cover:

  • Property damage: Covers any damage caused by severe weather conditions, vandalism, theft, or anything else that could damage the physical structure of the property.
  • Liability: Covers lawsuits, bodily injury claims, medical fees, funeral costs, legal fees, settlement costs, and other liability claims you may experience as a landlord.
  • Loss of income: In the event a tenant needs to move out due to severe weather conditions, your insurance will help compensate you for lost income. The lost rental income must be due to a loss event, and not something like an eviction, which is not covered.

There may also be additional coverage you can add, all of which will help protect you as a landlord. Examples of this are the following:

  1. Water and flood coverage covers water damage.
  2. Tornado coverage for areas that regularly experience tornadoes.
  3. Property coverage may be necessary if you are renting to tenants who are using your furniture. This can sometimes cover damage done to carpets or other fixed installments in the unit.

How Much Does Landlord Insurance Cost?

The cost to purchase landlord insurance varies depending on where you’re located, the size of the property, the cost to repair damage, and the level of coverage you’re looking for. It’s common to see an average landlord protection policy premium be in the annual $800 to $1,200 range. As a comparison, an average homeowner’s policy may be in the range of $700 to $1,000 annually, depending on size.

Typically, the more comprehensive the coverage is, the more expensive the policy will be. If you include options like the “lost rental income” coverage, then the premium will also be higher.

Do I Need Landlord Insurance?

If you’ve recently become a landlord and have tenants in your rental property, then the answer is yes. Landlord insurance can not only protect your property, but it can help protect you as the landlord in case anything happens during the lease term.

However, if you’re only renting your property a few weeks per year, then your homeowners insurance will usually provide sufficient coverage. Similarly, if you live in the same home or building as your tenant, you can likely upgrade your homeowners insurance so it also covers a “unit rented to others.”

What Type of Landlord Insurance Do You Need?

Landlord insurance comes in many forms and can have two different kinds of payouts. The different kinds of landlord insurance are called dwelling policies, and they fall into three categories:

  • DP-1: This is the most basic coverage. It covers relatively common occurrences, like fires and vandalism.
  • DP-2: This coverage is slightly broader and covers heftier (and less likely) damage. Mark Carrasquillo, an account executive with insurance broker E.G Bowman in New York describes DP-2 as coverage for “named perils, like damage from a windstorm, hail, fire, or vandalism.” It usually covers “provision for collision.” For instance, it covers damages if a car hits your building.
  • DP-3: This is the broadest policy. It is sometimes called “special form” or an “open peril policy.” Basically, every peril is covered under this policy, except for any that are listed as specifically excluded.

For each of these landlord policies, there are two different kinds of payouts. Cash value is a payout that gives you the cash amount for whatever was damaged. The amount is what you would pay for a similar item at today’s prices, minus depreciation. Replacement value, on the other hand, is usually amounted to the replacement cost only, without depreciation. Thus, replacement value usually gives you a higher and more accurately needed amount of cash.

If you have the choice between a cash value payout or a replacement value, it’s advised to go with replacement value as it will typically end up giving you more money to help cover costs of replacing damaged property.

What Is a Liability Insurance Clause and Why Do You Need it?

Liability insurance protects your financial assets in case someone files a suit against you in an effort to compensate for damages. Tenants can sue landlords for damage including financial difficulty, emotional harm, physical injuries, or death. While tenants can file a suit, they are usually only successful if you were actually liable for these damages.

To avoid being liable for damages, here are few tips to consider:

  • Make sure the property is in good condition.
  • Stay up to date on local landlord-tenant laws discussing building and safety codes.
  • Regularly inspect the property for potential hazards or anything that could potentially cause an injury.
  • Make sure the property does not contain lead paint, radon, or carbon monoxide.
  • Make sure the building remains safe and crime-free by installing extra lighting and keeping exterior doors locked.
  • Be sure to fix any maintenance repairs promptly.
  • Prepare your property for winter hazards, like ice.

Despite following all of these protocols, it’s still smart to have liability insurance just in case you are found liable.

When Are Landlords Held Liable?

Landlords can be held liable for many different situations. The most common are injuries resulting from slips, property damage from leaky pipes, and damage from break-ins. Landlords are considered responsible for these hazards when they have been negligent.

For instance, a landlord is responsible for damages if they doesn’t properly resolve a maintenance issue or fail to keep the unit safe and in good working order. The best way to avoid being liable is to keep your unit and building as safe as possible, regularly check on its condition, and fix any potentially dangerous problems immediately. And despite your best efforts to keep everything in good condition, it’s still smart to have landlord liability insurance to help cover damages and legal expenses if a suit is carried against you.

Fair Rental Income Clause

Fair rental income protects landlords if their property becomes uninhabitable due to damages. When your unit becomes uninhabitable, you are losing out on income. The fair rental income clause covers this lost income for as long as it takes for your unit to be repaired. Typically this clause only covers income for a period of up to 12 months.

The Cost Difference Between Landlord Insurance vs. Homeowners Insurance

According to the Insurance Information Institute (III), most landlord insurance cost roughly 25% more than a standard homeowners policy because landlords typically need more protection than the average homeowner. The idea behind this is that you are increasing your risk of damage when you rent your unit to tenants.

There are many factors used to determine the price of a landlord policy. The following factors were listed in the Insurance Information Institute (III):

  • The square footage of the house and any additional structures, such as a detached garage building costs in the area.
  • The features of the home and construction materials used to build it.
  • The crime rate in the neighborhood.
  • The likelihood of damage from natural disasters, such as hurricanes and hailstorms.
  • The home’s proximity to a fire hydrant (or other source of water) and to a fire station; whether the community has a professional or volunteer fire service; and other factors that can affect the time it takes to put out a fire.

Whether you’re new to being a landlord, you’re a DIY landlord, or you’re a highly experienced landlord, we recommend you require renters to have renters insurance. Often, renters blame landlords for stolen items. While it can be the landlord’s fault if they are not keeping the building safe from break-ins, the easiest fix to avoid this problem is to make sure the tenants are insured. Their renter’s insurance will cover things like stolen items.

Manage Your Rental Property With Avail

Landlord insurance is necessary when you are renting out your home for an extended period of time, or you are renting to tenants while you are not in the building. Your risk for liability and damages goes up when you become a landlord, so the cost of insurance will also increase, but so will the amount of coverage you receive.

Once you’ve secured landlord insurance, the next step is managing your rental property with landlord software to easily streamline time-consuming processes. Create an account for free to screen tenants, create rental applications, access lawyer-reviewed lease agreement templates, and more.