If you rent a property to a tenant, you need to be aware of different forms of insurance that exist specifically for rentals. Renting a property brings up different levels of protection and liability and a landlord should be aware of all options.
Landlord insurance is coverage for a rental property that insures the property while it is inhabited by a renter. Landlord insurance tends to be more expensive than homeowner insurance and offers different coverage as a result. Insurers generally want to know as soon as a property is being inhabited by a tenant. Failure to do so can result in a claim being denied and your policy canceled.
What Is Landlord Insurance?
Landlord insurance is specifically designed to cover certain aspects of a rental property that you own and are renting out to a tenant. Insurance companies generally want to know if the property they are insuring is being occupied by an owner or a renter. An owner can be expected to take care of the property in a different way than a tenant and certain issues may arise that are different for each type of living situation.
Your existing homeowner’s insurance won’t typically cover a rental property in the same way and it’s important that you contact your insurer beforehand if you are planning on renting out a property. You don’t want to be denied a claim or have your policy canceled if you rent out your property and neglect to tell the insurance company.
What Landlord Insurance Covers
Landlord insurance typically offers several main areas of protection with other add-ons available at an extra charge and inclusion.
Property Protection
The main part of the insurance is similar to what you would expect from a homeowner insurance policy: It typically protects and covers the property for replacement due to damage from fire, explosion, wind damage, hail and other covered losses. Typically you’ll be insured for a value that at the high end will cover the complete replacement of the property in the case of a total loss.
Confirm that you are also covered for theft, vandalism and both accidental (eg. tenant hits the garage door) and deliberate (eg. something is thrown through a window by the tenant) damage. Check with the insurer to be certain of what is and isn’t covered.
For a house, the total value of replacement will typically be lower than the current price you could sell the house for since the value of your “house” includes both the house itself and the land that it sits on. You replace a house in a complete loss, not the land.
Other Structures
Your landlord policy will typically protect other parts of the property not covered above that are separate from the house such as a fence or separate garage.
Ask your insurance company about other structures you have such as a shed, cabana, pool and things of that nature and see how they are covered if at all.
Some Equipment To Maintain The Property
If you supply certain equipment such as a lawnmower, snowblower or pool equipment for the tenant to use, it’s possible they may be covered. Whether or not you would want to make a claim for an item like a lawnmower is another story given the impact it could have on your insurance rate moving forward.
Liability
While your renter should have their own tenant insurance to cover their liabilities, you should have your own liability policy to protect you. If someone injures themselves and you’re held liable it can be a very costly amount that you will be required to pay and this insurance protects against that.
While you need liability insurance to be safe, there are things you can do to ensure you never need to access it. Keep the rental property in good shape. Repair problems as soon as they are reported by your tenant especially when it comes to steps, stairs, appliances, electrical issues and things that can be very dangerous.
Inspect the property with the tenant’s permission at least yearly to cover yourself further and illustrate that you are not a delinquent landlord.
Optional Coverage
Other forms of coverage you might consider for your landlord insurance policy:
Other types of damage: Check to see if a standard policy specifically includes protection against theft, vandalism, accidental damage, deliberate damage, and other things that could occur. If you have a fireplace ensure that any sort of damage from a fire is covered even if it’s accidental.
Rent guarantee: Check to see if this sort of option is available. It could protect you in the case of an issue where the property can’t be inhabited, is empty and not earning rent due to damage or another problem. Perhaps it’s an accident or extreme weather that caused damage. The policy might cover loss of rent if the tenant stops paying.
Legal Protection: Some policies add the option of legal protection. This could include access to legal help should you need to evict a tenant or have another issue that requires a professional legal opinion.
What Landlord Insurance Doesn’t Cover
Maintenance and Equipment Breakages
Landlord insurance typically won’t cover appliances, a furnace repair and things of that nature. So it won’t cover a broken washing machine or stove that is included in the rental property. You would have to look at a warranty or extended warranty to cover these items.
Flooding, Sewer Backups, Acts of God
Increasingly, insurers are amending insurance policies to restrict or prevent certain claims from being made. Specialty insurance usually covers flooding, sewer and water backup, earthquakes and things of that nature. You may have to add certain riders on your policy for it to become effective.
Of course, if you rent out a condo or apartment on the 2nd floor or above, you may not have to worry about a sewer back up but may be more concerned with flooding damage either from your unit or from the unit(s) above you.
Tenant Property
Landlord insurance typically won’t cover contents and property belonging to your tenant. Your tenant should purchase their own renters insurance to cover their personal belongings. As a landlord it’s a good idea to specify that as part of the rental agreement that they are required to carry this insurance and to show you a copy of their policy at signing. If they choose to cancel it later on that’s their business but they should have it to protect themselves and not rely on the landlord policy that you pay for.
Owner Occupied Property
Landlord insurance tends to be for non-owner occupied property rentals owners only. If you rent part of your property to someone else and you also live there, this sort of policy may not be suitable for you. Check with your insurer to discuss your specific situation.
Read The Small Print
I’ve noticed our landlord and other insurance policies always change clauses, add things, delete others and adjust yet other clauses seemingly every year. In some cases, they appear to adjust the coverage (not surprisingly) based on costly events that the insurance industry is paying for around the world (earthquakes, flooding, etc)
Recent changes I’ve noticed are:
- Changes to Vacant property status so that the property is not covered if it is left vacant for a period of time (eg. 30 days or more). In that case, you’d have to find a new insurer.
- Clarifications that the policy does not cover normal wear and tear on the property that should be expected through normal use of the property.
- Updates on the description of what constitutes an Earthquake, Coastal Flood and other natural disasters.
- Clarifications on levels of deductibles ie. If a deductible for a coverage is $250, that means that they will not pay the first $250 of the damage but will pay the remaining amount to the coverage limit. So if $1,000 damage is incurred, the insurer would pay $750 at most.
Landlord Insurance Cost
Budget to pay 15% – 20% more for landlord insurance than you are paying for regular homeowner’s insurance now.
According to insurance.com
the national average for homeowner’s insurance is $1,824 so landlord insurance would cost around $2,098 – $2,189 given the 15% – 20% range.
Bottom line: Whatever you’re paying now for regular homeowner’s insurance, expect to pay more than that for landlord insurance.
Cost is the question everyone wants to know the answer to but it’s the hardest one because you really need to go online or pick up the phone and call your insurer and get the answer from them.
If you decide to add coverage (ie. higher liability), raise/lower deductibles and make other policy changes, your rate can also change.
Reduce Your Insurance Premiums
Check with your insurance company to see how you can reduce insurance premiums but also use it as an opportunity to ensure you are not over or under insured. Here are some thoughts:
- Increasing your deductible(s) can help to lower premiums.
- Check to see that your replacement home value and liability coverages are high enough.
- Ask about specific coverages that are often not included ie. terrorism, act of god.
- Ask about discounts that might apply that you are entitled to. Having multiple home policies with the same insurer might result in a rebate.
- What isn’t included in the policy that you should be aware of?
- Does your policy cover short and long term rentals? In this era of short term house rentals, some insurers won’t cover them.
- Fully understand what flooding and sewer back up coverage is included. Insurers are getting more specific about this.
- If you have a pool or hot tub, ask about how this affects your required liability coverage.
- As if having a monitored home alarm will reduce your premium.
Summary
Landlord insurance is an important aspect of insuring your property when it is rented out. Familiarize yourself with the various options available to you as your personal situation may be different depending on your circumstances. If you are renting to a family your liability and potential insurance concerns can be different if you tend to rent to college students.
Ensure that you let your insurer know in advance that you are renting out your property as they want to know who is occupying the property since they are the ones covering the liability. Because landlord insurance tends to see higher claims that regular homeowner insurance policies, expect to pay 15% – 20% more for landlord insurance.