Although investing in rental properties can be a great way to generate passive income, it comes with several risks.
A rental property could suffer damage from tenants, natural disasters, or even loss of rental income. The best way for landlords to protect themselves if something unforeseen occurs is to get appropriate insurance coverage, which includes protection against loss, destruction, and damage, as well as contents insurance for furnished properties.
Certain policies are limited to specific circumstances. For example, building insurance won’t necessarily protect you if your tenant defaults on their rent.
Unfortunately, many fail to understand what risks are covered under standard policies. So, it’s important to learn what types of policies exist and how far the coverage extends to make an informed decision about how to protect your investment..
What is Landlord Insurance?
Landlord insurance is a policy designed specifically for people who own investment properties that they rent out to tenants. It provides financial protection if the rental property is damaged or becomes uninhabitable due to a covered event, such as a fire or storm, or if someone is injured on the property.
A standard homeowners insurance policy typically does not provide sufficient coverage for rental properties, which is why a separate landlord policy is necessary. Landlord insurance generally includes property damage coverage, liability protection, and compensation for loss of rental income.
While landlord insurance is not legally required, it is strongly recommended for all property investors. Many mortgage lenders will also require proof of landlord insurance coverage. Ultimately, landlord insurance is a wise investment to safeguard your property asset.
Types of Property Damage Covered
Landlord insurance policies typically cover a wide range of potential property damage triggered by an insured event, including:
- Fire and smoke damage
- Wind and hail damage
- Lightning strikes
- Vandalism and malicious mischief
- Theft
- Falling objects
- Weight of ice, snow or sleet
- Frozen pipes
- Sudden and accidental water damage from plumbing, HVAC or appliances
- Electrical damage
Reviewing your specific policy is important, as coverage and exclusions can vary. Some policies may offer additional coverage options for risks like earthquakes or floods.
Details of Landlord Insurance Coverage
Most landlord insurance cover policies include protection for the following events:
Damage or Theft by Tenants
Landlord insurance protects against insured events, such as tenants or guests damaging your rental property or stealing your belongings. Policies generally cover risks like vandalism, destruction of property, arson, and theft. So, if a tenant breaks a window, punches holes in the drywall, or takes your appliances, landlord insurance will pay for repairs or replacement costs.
Loss of Rent
Should tenants be forced to move out due to covered damage, landlord insurance will reimburse the property owner for loss of rental income while repairs are completed. Policies typically indemnify lost rent for a fixed period, often around 12 months.
Coverage for Loss of Rental Income
If your rental property becomes uninhabitable due to a covered peril like fire or windstorm, landlord insurance can help replace your lost rental income. This coverage, also called “fair rental value,” can pay the rent a property owner would have collected while the property is being repaired or rebuilt up to the sum insured.
Coverage limits and time restrictions vary by insurer. Some policies cover lost rent for 6-12 months, while others may have a dollar limit instead of a time limit. Be aware that this coverage is only triggered by covered property damage, not by other reasons for vacancies.
Rent Default
Standard landlord insurance policies may provide coverage if a tenant defaults on rent up to a specified limit. This covers landlords for losses arising from tenants’ inability to pay rent.
Rental default is among the most frequently claimed covers. Most insurers choose to reduce cover—with many having a maximum dollar limit and a maximum number of weeks. In addition to reviewing how the insurer pays claims, landlords should aim to find the highest limit for both dollars and the number of weeks covered.
Legal Expenses
Landlord insurance can cover legal costs and expenses required to formally evict non-paying tenants or tenants who violate the lease terms. The expenses of eviction proceedings, including court and legal fees, are typically up to a set amount. This protects you if legal action is needed against problematic tenants.
Liability Protection for Landlords
Legal liability coverage is a key component of most landlord insurance policies. This protects landlords financially if someone is injured on their rental property and they are found legally responsible. Liability insurance can cover the following:
- Medical expenses for the injured person
- Legal defence costs if the landlord is sued
- Judgments or settlements resulting from a lawsuit
Most policies provide at least $10 million in liability coverage, with options to increase limits if needed. This coverage applies to injuries suffered by tenants, their guests, or other people on the property.
Landlord Insurance vs. Homeowners Insurance
While landlord insurance and homeowners insurance both cover physical property, there are important differences to consider:
| Homeowners Insurance | Landlord Insurance |
| Covers owner-occupied homes | Covers tenant-occupied homes |
| Includes personal property coverage | Only covers landlord’s items used to service rental |
| Has loss of use coverage for the owner | Has loss of rent coverage for the landlord |
| Liability only for the owner’s family | Liability for tenant injuries and property damage |
Home insurance is typically more expensive than landlord insurance. People tend to make claims more when a property is their actual residence. Landlords generally try to keep the costs low for their investment properties, including making claims.
What Determines Your Landlord Insurance Rates
Insurance companies consider many factors when setting landlord insurance premiums, such as:
- Location of the property
- Age and type of building
- Condition and safety features
- Replacement cost of the building
- Amount of coverage and deductibles
- Rental income amount
- Claims history of the property
- Whether the property is occupied or vacant
Property owners can often earn discounts for having fire alarms and security systems, choosing a high deductible, and insuring multiple properties with the same company. Working with an experienced insurance agent can help landlords find the best coverage for their situation and budget.
Look at the coverage, exclusions, premiums, and claims process of insurance policies. The cheapest policy isn’t necessarily the best; aim for value for money, balancing coverage and cost.
Optional Add-On Coverages to Consider
Beyond the standard property and liability protection, many insurers offer optional coverages property owners can add to customise their landlord policy:
- Vandalism by tenants
- Burglary and theft
- Building code upgrades
- Rental property under construction
- Non-occupied dwellings
- Rent guarantee
- Flood and earthquake
These add-ons provide enhanced coverage for specific risks and can help tailor your policy to your unique situation. Adding endorsements will increase your premium, so consider your needs and budget carefully.
Which Policies Are Most Important for Landlords?
When it comes to landlord insurance, no single policy is inherently more important or necessary than others. Property owners can get coverage for all potential risks by carrying landlord, building, and contents insurance.
Comprehensive protection is always preferable–and in most cases, you can bundle policies together.
While contents protection is recommended, it may be considered more supplemental than landlord and building insurance. So, essentially, no “most important” policy exists—overlapping coverage across all three provides the best shield against all threats.
How to Choose the Best Landlord Insurance Policy
Choosing the best landlord insurance policy requires careful consideration of your needs, the property’s characteristics, and the potential risks. Start by assessing the value of the property and the income it generates. This will help landlords determine the amount of coverage needed.
Next, consider the likelihood of specific risks. If a property is in a flood-prone area, ensure the policy includes flood coverage. For landlords renting to students or young adults, consider policies with extensive coverage for tenant-related issues.
If you want insurance tailored to your circumstances, contact our insurance brokers at Duo Insurance to get the optimal coverage benefits for your property.
Key Takeaways
- Landlord insurance covers various risks, including damage/theft by tenants, loss of rental income, rent default, legal expenses for eviction, and liability for injuries.
- Landlord buildings insurance is crucial to cover the physical property against disasters, while contents insurance protects furnishings.
- No single “most important” policy exists – comprehensive landlord, building, and contents insurance provides the best protection.
- When comparing landlord insurance policies, look beyond just price to ensure you get adequate coverage for your rental property’s specific risks.