The Who, What, And How Much Of Landlord Insurance

Renting property you own to others can be a great source of income but it also carries unique risks that you’ll want to cover with landlord insurance, which is also sometimes referred to as rental property insurance, investment property insurance, investment insurance, or real estate insurance. Here’s what you need to know.

Who Needs It

Any time you rent out your property you need to talk to your insurance company so that they can determine what kind of insurance you’ll need. Most homeowners’ policies only cover homes that are owner-occupied, so if you start renting out your property to someone else, the coverage will probably no longer apply. Your tenants/renters are usually not responsible for things like large appliance malfunctions, injuries that occur on the property, forest fire damage/destruction, or theft. Any of these situations will mean money out of your pocket to fix them unless you cover yourself with a landlord insurance policy. There are a wide variety of landlord policies available so think about what you need to protect your rental property.

What It Covers

At a minimum, a rental property insurance policy should have the following basic protections.

• Property Damage – Covers you when the real estate or furnishings are damaged due to a natural disaster, fire, electric/gas malfunction, earthquake, vandalism, or irresponsible tenants. Policies that offer replacement cost instead of the actual cash value or a predetermined lump sum payment offer more protection.
• Loss Of Rental Income/Rental Default Insurance  – If your property becomes uninhabitable this coverage provides temporary rental reimbursement to cover the rent money you’d have received if the property was fit to be occupied.
• Liability Protection – This covers the medical and/or legal costs due to a tenant or a visitor suffering an injury due to maintenance issues, such as icy walkways, structural collapse, etc.

Beyond the basics, there are some common riders that may come with a landlord insurance policy that could be useful and save you some money.

• Guaranteed Income – Pays you if a tenant cannot pay any or all of their rent for a month.
• Flood Insurance – Covers flood damage related to natural disasters or municipal plumbing.
• Emergency Coverage – Pays some or all of your costs when you have to travel to the property to resolve a tenant’s issue such as fixing a leak or an accidental lockout. 
• Additional Construction Expenses – Covers expenses related to having to bring a building up to code after it’s been damaged.

Landlord insurance doesn’t cover a renter’s belongings, so it’s a good idea to advise your tenant to look into getting their own renter’s insurance coverage so there’s no confusion at the time of a claim.

How Much It Costs

Rental properties tend to be more prone to damage and incident so landlord insurance policies usually cost about 15% more than owner-occupied policies for the same property. There’s also an inverse relationship between the price of your premiums and the length of time the property is rented for. As such, you can expect to pay more in annual premiums if you rent out your property for only part of a year instead of the whole year. The logic is that short-term tenants might be more careless, may not understand the layout of the house (the plumbing, load-bearing supports, or electrical wiring, etc.), and are less likely to notice or mention maintenance issues. This increases the chances of problems and the insurer’s risk which is reflected in the higher premiums. On the bright side, your provider may offer a discount for bundling your homeowner’s policy and landlord insurance with the same company so make sure to ask.

Renting out a piece of property can be a nice way to supplement your income but you’ll want to protect your investment with the right landlord insurance coverage and we can help you with it.