A rental property is often considered a valuable financial investment because, if handled properly, it can provide owners with a steady flow of passive income. But renting out a property also gives rise to a unique set of potential risks, so getting the right kind of protection is crucial.
This is where landlord insurance comes into play. This type of policy offers specialized coverage for residential rental property owners to protect their personal assets in an event of a loss.
Landlord policies operate just like a standard homeowners’ insurance but have a few key differences. First, landlord insurance applies to properties rented out to tenants, not to owner-occupied residences, which homeowners’ policies cover. It also comes with higher liability limits as rental property owners face more risks than those who occupy their own homes. Lastly, because landlords are reliant on their rental property for income, landlord insurance provides coverage for lost income, which homeowners’ plans lack.
Contrary to popular belief, landlord policies do not cover tenants’ possessions. These are protected under a different type of plan called renters’ insurance. Industry experts recommend that landlords require their tenants to take out this form of protection to help cover for their belongings in case of loss or damage and prevent the financial ramifications from bouncing back to the property owners.
A landlord insurance policy comes with three core coverages, namely:
Read more: Top renters' insurance providers in the US
Landlords can also avail of additional protection or riders for more comprehensive coverage, including:
Rider |
What it covers |
Flood insurance |
Flooding and other water damage, including sewer backup and burst pipes |
Earthquake insurance |
Damage or loss caused by earthquakes |
Guaranteed income insurance |
Lost income if tenant is unable to pay rent |
Building code insurance |
Cost to repair or rebuild the rental property to comply with updated building codes |
Emergency coverage |
Cost to resolve an issue that a tenant calls in such as leaking faucet or being locked out of the property |
Non-occupied dwelling coverage |
Pays out for claims occurring when the property has been unoccupied for more than 30 days |
Several factors influence the cost of landlord insurance premiums, including the age and condition of the rental property, where it is located, the type of tenants, and home features considered high-risk.
According to the Insurance Information Institute (III), landlord policies typically cost 25% more than standard homeowners’ coverage because of the additional protection they provide. For perspective, the average cost of home insurance with $250,000 dwelling coverage in the US, according to the latest figures from consumer financial services firm Bankrate, is $1,383. This means that for the same property, landlord insurance will cost around $1,729.
Experts advise rental property owners to practice due diligence when searching for the best landlord insurance policy that fits their needs. Here are some of the factors they need to consider when looking for the right coverage:
Read more: Revealed – The most and least expensive US states for renters' insurance
Landlord insurance is not mandatory in the US, but it may be a requirement for taking out a mortgage on a rental property. Although not compulsory, several consumer financial websites pointed out the benefits of getting this type of coverage.
Forbes Advisor described landlord insurance as a “wise financial decision to protect your asset.”
“Owning a rental property is a great way to make extra money. But a homeowners or renters insurance policy doesn’t offer the protection you need as a landlord,” according to Coverage.com. “If you have a rental property, you need landlord insurance to protect your personal assets in the event of a loss. You can also purchase endorsements, like flood insurance or building code insurance, to extend your coverage even further.”
“Getting the right coverage can make or break your ability to be a successful and long-term landlord, no matter how you plan to rent out your property,” Hippo.com added. This is why landlord insurance is so crucial – it protects you legally and financially from anything that may come your way.”