8 Reasons Why You Need Landlord Insurance in 2024

Laura Olson
Apr 19, 2024

Imagine you’re out running errands and receive a call from your tenant about a minor kitchen mishap that caused some smoke damage. Without landlord insurance, even small incidents like this could lead to significant out-of-pocket expenses.

As a real estate investor, you want to protect the assets you've worked hard for, and ensuring you have the right coverage is your first proactive step. You don't want your insurance to fall short when you need it most. Protecting yourself, your tenants, and your property from unforeseen events is paramount.

But not all insurance is built the same. So why do you need this specific coverage for your rental properties? Let's dig in.

1. Homeowners Insurance Doesn't Cover Rental Property

You likely have a homeowners policy on your everyday residence, however, homeowners insurance typically doesn't cover rental property because the risks are different. Homeowners policies are designed for owner-occupied properties, whereas landlord insurance is tailored for properties occupied by tenants and tailors its coverages for that scenario. If you try to make a claim using homeowners insurance for a rental property, there's a good chance the home insurer will deny it.

2. Protect Your Investment Property From Natural Disasters

Landlord insurance covers your investment property in the event of damage from a natural disaster, such as a fire, hurricane, or tornado. The landlord insurance policy will also cover the cost of repairs if the dwelling is uninhabitable due to a covered loss.

This could include not only the physical structure of the property but also essential systems like plumbing and electrical, ensuring that the property is restored to a livable condition as quickly as possible.

It’s important to note that standard policies usually exclude certain natural disasters like earthquakes and floods. If your property is in a high-risk area, consider additional coverage options to ensure your investment is fully protected. Also, look into umbrella insurance if you own multiple properties, as it can provide extra liability coverage beyond your standard policies.

3. Cover Cost of Repairs or Replacement

After a covered incident, the cost of repairs or even a complete replacement of parts of your property can be substantial. Once your deductible is paid, Landlord insurance takes over the rest of these expenses.

Policies detail specific coverage provisions and exclusions, so it’s important to understand them and equally important to work with an insurance company that can walk you through your policy step-by-step. For instance, while landlord insurance typically covers accidental damage, it won’t cover repairs due to normal wear and tear or negligence in property maintenance.

4. Financially Safeguard Yourself From Damage Caused by a Tenant

As much as you prepare, accidents happen, and often they may be in the form of damage done by your tenants. It could range anywhere from a burst pipe in the bathroom to a mishap involving a malfunctioning appliance, like a washing machine or dishwasher. Landlord insurance is set up to help to safeguard you from this additional risk.

A policy can cover a chunk of the cost of repairs up to a certain amount. Whether it’s repairing water damage, replacing damaged appliances, or addressing any resulting mold issues, your insurance policy provides a financial safety net and peace of mind.

5. Limit Your Personal Liability

As a landlord, you could be held liable if someone is injured on your property. Landlord liability insurance helps protect you from the financial burden of medical bills and legal fees if a tenant or visitor gets injured. This coverage can also include legal defense costs if you’re sued, helping you manage the financial impact of personal injury claims and property damage lawsuits.

6. Provide Legal Representation If You Are Sued

While no one likes to think about being sued; unfortunately, even the best landlords can sometimes find themselves in a legal challenge. If a tenant decides to sue you, landlord insurance may cover your legal fees for any liability related to the property or premises. According to the legal resource website Nolo.com, if you are sued in small claims court, the maximum award is between $2,500 and $25,000, depending on the state.

Common reasons for tenant lawsuits include failure to make repairs, injury sustained on the premises, illegal evictions, and discrimination. Not every lawsuit is covered, however, Landlord insurance can cover legal fees and court costs associated with these many issues, ensuring you have the resources needed to defend yourself without draining your finances.

7. Recover Lost Rental Income

If your rental property becomes uninhabitable due to damage from a covered event, landlord insurance can help cover the loss of rental income. This coverage typically reimburses you for the rent you would have collected during the repair period, up to the policy limits. For example, if your property is damaged by fire, you could be compensated for lost rent for up to 12 months while repairs are underway. Because many property investors use that rent to pay the mortgage on the house, landlord insurance can create a cushion to ensure money keep moving in the right direction.

8. Knowing You Are Protected With Replacement Cost Value Coverage

When it comes to insurance, there are two main types of coverage: replacement cost value (RCV) coverage and actual cash value (ACV) coverage. RCV covers the cost of replacing your property, regardless of its current value. ACV, on the other hand, reduces coverage to subtract for any depreciation that has occured to the property or materials, which may be less than the cost to replace them.

For example, if your rental property is destroyed in a hail storm, RCV coverage would cover the cost of rebuilding, even if the construction price has gone up since you originally bought the property or the home is older and will cost more to replace with new materials. Imagine your roof is 15 years old. The roof will have depreciated in value because it only has so many years of life left. 

If you have (ACV) coverage instead of RCV coverage, the ACV is very low and that’s all the money you’d get towards replacing the roof, rather than the real expense costs to replace the roof that are covered under RCV coverage. You’d be on the hook for the difference. 

Most landlord insurance policies will cover the full replacement cost of the rental property, up to the policy limit. If your rental property is destroyed, you should receive enough money from the insurance company to rebuild it.

When shopping for landlord insurance, be sure to ask about the coverage limit and whether the policy covers replacement cost or actual cash value. Doing so will help you choose the right policy for your needs.

Get an instant quote from Obie today

If you're a landlord or thinking about purchasing rental property, landlord insurance is a must. However, with so many options on the market, it can be challenging to find the right policy at the right price.

That's where Obie comes in. With Obie’s easy-to-use online platform, you can get an instant quote on landlord insurance, specifically designed for landlords and real estate investors who don't want to waste time with paper applications or agents. Whether you want to talk on the phone with insurance experts or bind a policy in minutes, we're just a click, quote away.