Landlord Insurance for Rental Property: Cost & Coverage

So you’ve got a property you’d like to rent out and generate some monthly income. Fantastic! But don’t forget to protect your investment. Landlord insurance is what I consider a must-have, as many homeowners insurance policies won’t cover properties that are rented out. Plus, landlord insurance affords you many other protections, such as loss of rental income if the property becomes uninhabitable, damage your tenants might do to the property, or liability you might incur if a tenant gets injured on the premises. 

For this type of coverage, one of my go-to companies is Obie Insurance. Obie Insurance makes it easy to get a quote in just a matter of minutes, allows for easy customization of your policy to suit your specific needs, and provides competitive pricing without sacrificing the comprehensiveness of its coverages.

How much does landlord insurance cost?

According to Obie Insurance, you can expect to see premiums run around $800 to $3,000 per year. This will depend on a large number of factors, such as where the rental property is located, details of the home, the coverage you have selected, and your claims history. Ultimately, it’s important to factor in the cost of insurance if you’re starting your own real estate brokerage. 

Some common factors insurance companies consider when calculating the price you’ll pay for landlord insurance include:

• Property location: Crime rates and the likelihood of natural disasters are just two examples of major items that can determine a home’s risk of being damaged. Insurance companies know this and will factor in a home’s location in calculating the annual premium. 
• Size of the home: Typically speaking, the larger a home is, the more expensive it will be to insure, as larger homes tend to cost more to rebuild in the event of any damage. 
• Age of the home: Older homes are generally viewed as higher risk by insurance companies. This is because they’re more likely to have been built with outdated building codes or with material that’s more difficult to obtain, making the property more susceptible to damage and more expensive to repair. 
• Claims history: How often you’ve filed claims in the past, as well as how costly those have been, can impact your insurance premium. In extreme cases, insurance companies may decide not to offer any coverage at all if you’ve had a history of excessive claims. 
• Policy coverages selected: The more coverages you select, the higher your premium will be. Some items can help lower your premium, such as selecting a higher deductible. 
• Tenant characteristics: The type of tenants you have is something that can impact your premium. For example, short-term renters tend to be higher risk and are associated with larger premiums.

Tips to save money

It can be a tough pill to swallow when it comes to paying for insurance. After all, its value can only be seen in the event of an accident, which is hopefully a rare occurrence. Fortunately, there are ways to lessen the impact of insurance costs. 

The tips below can help keep more money in your bank account:

• Shop for quotes: Different insurance companies can have varying appetites for risk. Some may discourage new business in a particular area, for instance, by quoting sky-high rates. Others may want to attract new business by offering lower rates. 
• Adjust your deductibles & coverages: Higher deductibles are correlated with lower premiums. Just make sure you can afford it in the event you do have to file a claim. Similarly, make sure you’re getting the right amount and types of insurance coverage, depending on the details of your property and tenants. 
• Bundle policies with the same insurer: Most insurance companies offer discounts if you bundle multiple policies with them. An added bonus is that it usually makes payment and management of your policies much simpler if you house them with the same company. 
• Check for discounts: Discounts may be available depending on the features of your home, such as the presence of a home sprinkler system, properties with professionally monitored home security systems, or the presence of a newer roof or hail-resistant roof.

What landlord insurance covers

Insurance policies can vary from one company to the next, so it’s important that you always verify the details of what your policy will cover. And for this, I don’t recommend taking an insurance agent’s word for it. Instead, dive into the fine print of your policy. Yes, I know there are many more enjoyable things than reading a long insurance document — but it could potentially save you tens of thousands of dollars from an uncovered or uninsurable incident. 

Dwelling

This coverage pays to repair physical damage to your home in the event of a covered loss. A covered loss is usually defined as an accidental fire or natural disaster, such as a hurricane, lightning, wind, or hail. Note that damage from a flood is not usually included under dwelling, and must be purchased separately. 

Detached structures

This portion of the insurance policy generally covers anything that’s not attached to the home. Common examples include fences, detached garages, and storage sheds. 

Personal property

Insurance policies will generally cover certain types of personal property in your rental. Some examples include appliances, furnishings, and equipment that you use to service and maintain the home. 

Note that this coverage will likely not protect your tenant’s personal property. For that, your tenants should get renter’s insurance. Additionally, some insurance companies may not cover any of your personal items that you happen to leave at the rental home, such as a bicycle or other belongings. As always, check your policy to see what would be covered under certain scenarios. 

Liability

Liability coverage protects you as the landlord if one of your tenants gets injured on the property and decides to sue you. This could occur from something like a slip and fall accident as a result of a broken handrail. If that occurs, liability coverage can help cover the costs associated with your defense in court, as well as actual damages that might be awarded to your tenants. 

Loss of rental income

In the event of a covered loss that results in your home being uninhabitable, your tenants may not be required to pay rent until the home has been restored to a habitable condition. Fortunately, some insurance companies may provide protection against the rental income that you might lose during that time period.

What’s not covered by landlord insurance?

While landlord insurance provides protection for a wide range of circumstances, it doesn’t cover everything. The items below are commonly mistaken as items that are covered by landlord insurance, when in fact, they almost always aren’t. 

Eviction costs

If you ever need to evict a tenant, perhaps for non-payment of rent, you may need to bear the costs on your own, as landlord insurance does not typically cover eviction costs. Fortunately, however, eviction insurance can be purchased separately if you choose to do so. 

Flood damage

Damage from flooding and rising waters is often specifically excluded in typical homeowner’s insurance and landlord insurance policies. If you want coverage from this type of incident, you’ll need to purchase it separately. 

Tenant property

Personal property that belongs to your tenants is not covered under a landlord insurance policy. If your renters want protection, they’ll need to buy their own renter’s insurance policy. 

Equipment breakdowns

If an appliance in your home, such as a dishwasher, breaks down, it likely won’t be covered by landlord insurance. Other common big-ticket items include the HVAC system, stove, or refrigerator, all of which would require you to pay out of pocket for repairs or replacements if you don’t have any other type of warranty protection for them. 

Landlord insurance vs. homeowner’s insurance vs. renter’s insurance

If you’re not in the insurance industry, certain terminology can be confusing, especially those that sound similar. Three of the most common terms I hear others get confused about are landlord insurance, homeowner’s insurance, and renter’s insurance. So what are they, who are they for, and what are the differences?

Landlord insurance

This is designed for individuals who own rental property and offers protection against liability, damage to the home, and potential loss of rent if a covered event occurs. This type of coverage is typically intended for homes in which you do not reside, and can include long-term rentals, occasional short-term rentals, and frequent short-term rentals like Airbnb’s.

Depending on which state the property is located in, the type of property you’re renting, and how you intend to use the property, you may find that landlord insurance does not provide sufficient coverage. If that’s the case, you may need a commercial insurance policy, which tends to have more flexibility in the types of buildings that can be covered.

Homeowner’s insurance

This is designed for homes that you occupy as your primary residence. It also includes coverage for liability and physical damage to the home, but coverage could be declined if the home is non-owner occupied or rented in any way, shape, or form.

Renter’s insurance

This coverage is the responsibility of your tenants to obtain. It provides protection and coverage for their own personal belongings and possessions against things like theft or damage from natural disasters and other covered events.

Frequently asked questions (FAQs)

Bringing it all together

If you rent out your property, landlord insurance may be a smart move to protect your investment. It can help cover damage done to the home and protect your financial assets if someone claims bodily injury and sues you for damages. While it may seem like an unnecessary expense, it can save you potentially tens of thousands of dollars in the event you ever do need to file a claim. 

Have other questions about landlord insurance? Let us know in the comments below!