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As a landlord, you face the risk that unexpected disasters such as fires or storms could damage your property. In addition, you could be sued with allegations that tenants or their visitors were injured as a result of negligence. Landlord Insurance can step in to protect the value of your rental property and cover any liability claims that arise.
What is Landlord Insurance?
Landlord Insurance (also known as rental dwelling insurance or rental property insurance) is a common type of policy for landlords that typically covers property damage to residential buildings, lost rental income if a property is uninhabitable while repairs are completed, and liability claims.
- A defective power outlet causes a fire in a house you rent out, resulting in some damage in the kitchen. Your Landlord Insurance would cover the repairs.
Who needs Landlord Insurance?
Landlord Insurance is necessary for property owners who rent out one or more single-family homes or small apartment complexes with four or fewer units. Landlord Insurance is not designed for large apartment properties. Landlords who rent out large apartment complexes with more than four units will likely need to secure property and liability coverage with separate commercial property and general liability policies or a business owner’s policy.
For those offering short-term rentals, it’s important to note that Landlord Insurance is designed for long-term rentals and is not typically suitable if you are renting out your property on a short-term basis.
If you rent out part or all of your home on a regular basis—for example, if you operate an Airbnb—you would need a hotel or bed and breakfast policy to provide coverage.
If you occasionally rent out part or all of your primary residence on a temporary basis, some homeowners policies will provide coverage. Other homeowners policies will require you to add an endorsement to cover this scenario.
What does Landlord Insurance cover?
Landlord Insurance policies can vary depending on the insurer, but they typically offer coverage for these areas:
If your rental property is damaged by fire, storms, hail, or other perils, Landlord Insurance will provide funds for repairs or replacements. Personal property belonging to the landlord can also be covered, but it’s important to note that the personal property of your tenants is not covered by Landlord Insurance policies. Coverage could also include other structures on your rental property, such as garages or fences, but you may have to add this coverage by endorsement.
- A diseased tree falls against the wall of your rental property, shattering several windows and damaging the wall. Landlord Insurance would cover the costs of replacing the windows and repairing the wall.
Lost Rental Income
In some cases, property damage may be so severe that tenants must vacate the premises. In this situation, they would likely no longer be required to pay rent. If your tenants are unable to reside at your property due to damage from a covered peril, the lost rental income coverage portion of landlord insurance will provide funds to reimburse you for lost income.
- During a heavy storm, a power line falls onto your rental property and causes a fire to break out, severely damaging the home. Your tenants must move out while repairs take place. Landlord Insurance would reimburse you for their rent.
Landlord Insurance frequently includes liability coverage. This will provide funds for medical expenses and legal fees if you are held liable for an injury or property damage that occurs on your property. Faulty repairs or a lack of maintenance could cause your tenants to suffer damage to their property or bodily injury. Even if the injury or damage was not your fault, tenants could believe you were negligent and sue you. The liability portion of Landlord Insurance can provide coverage in these situations.
- A balcony railing breaks when one of your tenants leans on it, causing her to fall and suffer a head injury. Your Landlord Insurance would cover her medical costs and would also cover legal expenses if she sues.
DP1, DP2, and DP3 Coverage
Landlord Insurance policies often come in three typical forms: DP1 (Basic), DP2 (Broad), and DP3 (Special). DP forms, often called dwelling fire forms, represent different levels of coverage, and the specifics of each level may differ by insurer. Most landlords choose DP3 policies because they offer the broadest coverage.
- DP1 policies provide the cheapest and most basic coverage. These policies offer actual cash value coverage for your property, which takes depreciation into account when reimbursing you for losses. They offer fairly limited named perils coverage, which covers only the specific perils listed in the policy. Lost rental income may also be covered.
- DP2 policies also offer named perils coverage, but they typically cover a few more perils than DP1 policies. DP2 policies offer replacement cost coverage for your property, which will pay for new replacement items or rebuilding without taking depreciation into account. DP2 policies may also include coverage for lost rental income.
- DP3 policies are more extensive than the other two forms. They operate on an open peril basis, covering all perils except those specifically excluded in the policy. They also cover your property with replacement cost coverage and will cover lost rental income. Because they offer the broadest range of coverage, they are more expensive than DP1 and DP2 policies. Liability coverage is also a common endorsement that can be added to DP3 policies.
There are a variety of endorsements available to add to your Landlord Insurance policy. Some common endorsements include:
Non-Occupied Dwelling Coverage
Many Landlord Insurance policies exclude coverage for properties that have been unoccupied for more than 30 or 60 days. Since rental homes may be unoccupied for a time while you find new tenants, non-occupied dwelling coverage can be useful. This would extend coverage to include the time the property was unoccupied.
Rental Property Under Construction Coverage
If you are building a new property or renovating an existing building, you can purchase rental property under construction coverage to protect your building while construction is ongoing.
Building Code Coverage
If local building codes change and you are planning to repair or upgrade your property, you may also be required to renovate your property to meet the new requirements. Landlord Insurance would not ordinarily cover these costs. A building code coverage endorsement can add coverage to pay for the costs of updating your property to meet building codes.
Landlord policies typically do not include coverage for theft or burglary. For rental properties that are not occupied by the owner, a limited theft coverage endorsement is available. This does not cover your tenants’ property, but it does provide coverage for damage caused by burglary and for items belonging to you, such as appliances, furnishings if you rent out a furnished dwelling, and other items that you may keep on the property, such as lawnmowers.
A vandalism endorsement will add coverage for damages caused by vandalism, which is excluded from most standard Landlord Insurance policies.
What is excluded by Landlord Insurance?
There are a number of common exclusions to Landlord Insurance. These include:
- Damage to property belonging to your tenants. Your tenants will need to purchase renter’s insurance to cover their own property.
- Equipment breakdowns. If an HVAC system on your rental property breaks down, Landlord Insurance will not cover it.
- Shared property. If you own a property and rent part of it out while still residing on the premises, Landlord Insurance likely will not be applicable. You may need to extend your homeowners insurance policy.
- Earthquakes and floods. You may be able to purchase separate coverage for these events.
- Power failure. If your local utility or power service fails in some manner, resulting in property loss, this will not be covered.
- Neglect. If you neglect to use all reasonable means to save and preserve your property at and after the time of a loss, coverage can be excluded.
- Intentional loss. Property damage that is caused intentionally by you or any other additional insureds is not covered.
- Governmental action. Any property damage caused by the actions of any governmental or public authority is not covered.
Do you need both Landlord Insurance and homeowners insurance?
No, you would only need one of these policies for the same property. Homeowners insurance is intended to cover properties that are occupied by the owners—it does not cover properties that are rented out to others. If you rent out your property and do not reside in the property, Landlord Insurance can provide coverage.
For homeowners who rent out part or all of their primary residence on an infrequent basis—for example, for a few holidays a year—homeowners insurance can provide coverage. Some insurers may require you to add an endorsement onto your homeowners policy to ensure that you are properly covered.
Is Landlord Insurance tax deductible?
Yes, Landlord Insurance premiums are tax deductible. Insurance costs for your rental property are considered a business expense. Other insurance policies you might purchase for rental properties, such as flood insurance, are also tax deductible.
As a landlord, it’s crucial that you protect your property from unexpected catastrophes. If your property is damaged, you would have to pay for repairs and may also lose rental income if the home is no longer habitable. In addition, there’s a possibility that tenants could sue you if they believe an injury or damage to their property was caused by negligence on your part. Landlord Insurance will provide financial protection for these common risks faced by landlords.