9 Reasons Why You Need Landlord Insurance in 2023

Laura Olson
Jan 1, 2023

You're a successful landlord who owns several rental properties. One day, while you're out running errands when you get a call from your tenant. Smoke is pouring out of the building, and they can't get in…

There was a kitchen fire, and now your property is totaled.

Without landlord insurance, you would have suffered a substantial financial loss. Don't let this happen to you. Here are 9 reasons why landlord insurance is so important. 

Looking to protect yourself and your investment? Get an instant quote from Obie today. No paper applications, week-long waits for quotes, or back-and-forth with brokers.

1. Homeowners Insurance Doesn't Cover Rental Property

If you're considering renting out your home, it's essential to understand the difference between homeowners insurance and landlord insurance. Homeowners insurance typically doesn't cover rental property because the risks are different. A homeowners policy requires the property to be occupied by the owner and tailors its coverages for that scenario. A landlord policy requires the property to be 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's policy will also cover the cost of repairs if the dwelling is uninhabitable due to a covered loss

Remember that landlord insurance policies typically do not cover earthquake damage, so property owners in earthquake-prone areas should purchase additional coverage from their carrier to protect their investment. If you rent out multiple properties, consider looking into umbrella insurance, a type of liability insurance policy that provides additional liability coverage over and above your individual landlord policies.  

3. Cover Cost of Repairs or Replacement

Insurance for rental property covers the cost of repairs or replacement after the landlord pays the deductible. The landlord insurance policy will include coverage provisions, exclusions, and conditions that outline what is and is not covered under the policy.

For example, landlord insurance does not cover damage caused by the landlord's negligence, such as failing to repair a broken window. In addition, it typically does not cover repairs needed due to normal wear and tear.

4. Financially Safeguard Yourself From Damage Caused by a Tenant

As a landlord, you have a lot of financial responsibility. Not only do you have to keep up with mortgage payments, but you also have to pay for repairs and maintenance. If a tenant damages your property, you could be faced with a huge bill.

Landlord insurance can help to safeguard you from additional risk. The policy may cover the cost of repairs up to a certain amount if the tenant causes damage to your property such as with a kitchen fire or burst pipe. It can provide peace of mind in knowing that you are financially protected in case of damage caused by a tenant.

5. Limit Your Personal Liability

If you're a landlord, you're always looking for ways to limit your personal liability. After all, if someone is injured while on your rental property, you could be held responsible. Landlord liability insurance can help.

This type of insurance typically covers things like bodily injury or property damage if someone is injured while on your property. That way, if someone trips and falls and injures themselves, you won't be on the hook for their medical bills. Instead, your insurance will generally cover it.

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. While not all of these lawsuit types are covered, it's crucial to have landlord insurance in case the worst happens. With this type of coverage, you can rest assured that you'll have the resources from your insurance carrier that you need to fight any legal battles that come your way.

7. Avoid Having to Dip Into Your Own Savings

One of the most significant advantages of landlord insurance is that it can help to cover unexpected expenses related to the rental property, such as repairs or legal fees. This can save landlords a lot of money, as they would otherwise have to dip into their own savings to cover these costs. 

The size of the deductible amount affects the price of a landlord insurance policy. A higher deductible means that the landlord will have to pay more out of pocket if there is an incident, but it also means that the monthly premium will be lower. 

8. Recover Lost Rental Income

If your rental property is damaged or destroyed due to a covered loss, landlord insurance can help to cover your lost rental income. This type of coverage typically reimburses the landlord for a certain number of months of rent lost due to the damage.

For example, let's say your rental property is destroyed in a fire. You would not be able to collect rent from tenants during the time that it takes to rebuild. However, if you have landlord insurance coverage, you could be reimbursed for up to 12 months of lost rent, depending on your coverage limits. This can help to ease the financial burden during a difficult time.

9. 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 fire, 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. This can give landlords peace of mind knowing that they can fully replace their rental property if it is ever destroyed.

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.

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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.

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