Renting out your home, whether on a long-term or short-term basis, is becoming more popular with vacation rental homes sites like Airbnb and VRBO. However, your standard homeowners insurance won’t cover a loss if you aren’t using that home as your primary residence.
And if you’re not operating a fully fledged business, you won’t need a commercial insurance policy either. If you’re a landlord and are renting out a home you own or a building you own, you’ll need landlord insurance.
What Is Landlord Insurance?
Landlord insurance is designed to provide insurance coverage for landlords who rent out their home or building to a tenant. It’s similar to homeowners insurance and falls under the category of personal insurance, as long as you’re not renting it out under a business name, in which case you would need commercial insurance.
Technically, landlord insurance is often referred to as “dwelling fire insurance” inside the insurance industry, but using the term landlord clarifies that you’re renting out the building, which is an important thing to notify your agent of.
Landlord insurance usually includes the following types of coverage:
- Property insurance: Your property is considered the physical structure that you’re renting, such as a house or a building. Anything bolted down and of a permanent nature is considered to be part of your building and is covered under your property insurance.
- Liability insurance: Liability insurance will protect you from lawsuits brought against you as a result of you renting your building to someone else. Renting out to other people potentially carries more risk than a standard homeowners insurance policy, so it’s best to carry as much liability as possible.
- Loss of income: This may not be an automatic part of your policy, but you may be able to add it on as an endorsement. If you have a covered loss, such as a fire or windstorm that causes you to lose rental income, your policy would pay you for the lost income.
- Personal contents: If you own personal contents or belongings at the rental house, such as a mower, tools, furniture, or appliances, you can add coverage for these on your landlord insurance policy.
WATCH OUT FOR: Your landlord policy's terms about vacancies. Most standard property insurance policies have vacancy clauses that say if the property is vacant for some time, there is no coverage for anything. This period typically ranges from 30 to 90 days, but some policies may even be less than 30 days. Know what your policy says about vacancy and be sure to speak with a local independent insurance agent, who can help you find the proper insurance coverage if your home is going to be vacant for longer than your landlord insurance will allow.
How Much Does Landlord Insurance Cost?
Landlord insurance varies considerably in price, just like homeowners insurance does. There are many rating factors that go into determining what your landlord insurance premium will be, including:
- Location: Your insurer sets different rates based on your ZIP code and location. Homes or buildings in a high-risk area for things like floods, fires, or tornadoes will be more expensive to insure. Also, homes located out in the country and far away from a fire department are usually more expensive to insure.
- Age and condition of the building: Newer homes and buildings are less likely to catch fire and are typically less expensive to insure. If you have an older home, having the roof, heating, plumbing, and electricity recently updated and in excellent condition can help lower your premium.
- Coverage amount: The more coverage you have on the home or building, the more your premium will be. Insuring a home for $75,000 will cost a lot less than insuring a home for $450,000.
- Coverage options: If you want to insure your home or building with replacement cost, it will probably cost more than insuring it for actual cash value, which accounts for age and depreciation. Adding coverage options like water back-up damage and replacement cost on your personal contents will also cost more money.
- Claims history: If you or the home have had claims in the last few years, this can cause you to have a surcharge, as homes with recent claims are actually more likely to have another claim, so insurers charge more premium.
In general, you can reasonably expect landlord insurance to cost roughly the same as homeowners insurance, with some policies costing less and some costing more. For most types of houses and buildings, you can probably expect to pay between $500 and $2,000 a year for landlord insurance.
Can a Landlord Require Renters Insurance?
Yes, a landlord can require a tenant to have renters insurance. In fact, this is probably a good practice to get into because it could help prevent or reduce lawsuits against the landlord.
From a landlord’s perspective, requiring all their tenants to have renters insurance helps reduce any conflict over tenants' personal belongings if there’s a claim. Without renters insurance, a tenant could try to claim money from the landlord if some of their belongings was damaged in a fire or other event. With renters insurance, this situation is largely avoided and the tenant will file a claim on their personal belongings through their renters insurance.
Requiring renters insurance can also prevent or reduce liability claims. Since all renters insurance policies come with liability insurance, the landlord knows that if somebody gets hurt and sues both the tenant and the landlord, the landlord may not be the primary person named in the lawsuit, and most of the settlement money would come out of the renters liability insurance.
Not requiring renters insurance makes it too easy for the renters not to buy renters insurance, but the landlord can make it mandatory to have insurance before they rent.
Does Renters Insurance Cover Damage to a Landlord's Property?
No, renters insurance only covers damage to the renter’s personal contents. However, the liability part of renters insurance could potentially pay for damage to the landlord's property if the claim situation called for that.
Liability insurance pays for injuries and damage to a third party, which could include a landlord. So if the tenant is found to be responsible for damage to the landlord’s property, then the tenant's liability coverage could pay for that damage.
But other than a liability claim, there isn’t a specific part of a renters insurance policy that will provide specific coverage for damage to the landlord’s property.
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Is Landlord Insurance the Same as Building Insurance?
Technically no, landlord insurance is not the same thing as building or property insurance. Building or property insurance refers to insurance coverage that only applies to a specific building. It is usually one part of a broader type of insurance policy.
Landlord insurance almost always includes coverage on a building, but it also includes liability coverage. So while building insurance can make up one part of landlord insurance, landlord insurance isn’t always the same thing as building insurance because it also includes liability.
What Does Landlord Contents Insurance Cover?
You can add personal contents coverage onto your landlord insurance policy, but it will only cover anything that's owned by the landlord and located in the building or home that’s covered by the policy.
For example, if the landlord has a mower on the property along with some tools that are worth $5,000, these can be covered on the landlord insurance policy.
Do I Need Landlord Insurance?
If you’re renting a house or a building to someone under your own personal name, then you need landlord insurance. Renting a house or building out under a business name would require commercial insurance, but if you own the building and are renting it out under your personal name, then landlord insurance can provide valuable coverage.
Liability coverage under your landlord insurance will cover you if you’re brought into a lawsuit related to the rental, while loss of income coverage could reimburse you for lost rental income if your house or building experiences a covered loss, such as a fire or tornado. And you can even cover personal contents or belongings that are permanently stored at your rental house.
To make sure you’re getting the appropriate insurance at a competitive premium, speak with an independent insurance agent before buying a policy. An independent insurance agent can ensure you and your property are receiving the right insurance coverage and will have access to multiple insurance companies to find you the best deal.