Insurance For Renting Your Home: The New Landlord’s Guide

Laura Olson
Oct 17, 2022

One day you're renting out your extra room to help with the bills, and before you know it, you've got an entirely separate property to manage.

While becoming a landlord brings plenty of new responsibilities, one of the most important is ensuring you have the right insurance. So, do you need landlord insurance? Let's take a closer look.

What Kind of Insurance Do You Need for Renting Your Home?

A tenant is less likely to be as careful with your property and other personal items, like appliances and furnishings left in the dwelling, than you would be. Even if they would care for the property like their own, the chance of ignoring minor wear and tear damages until it is too late is also higher.

That means your property is exposed to more risk when you rent it out. As such, standard homeowners insurance will not cover your rental property.

Homeowners vs. landlord coverage

That's where landlord coverage, also called rental property coverage, comes into play. These are made specifically for landlords with tenant-occupied properties. Apart from covering damages to the property's primary structure, landlord insurance also covers liability claims and loss of use.

Liability coverage covers medical, legal, and other expenses a landlord could be liable for due to negligence. With the loss of use, the insurance company reimburses you for the period your house remains without a tenant during renovations from a covered loss.

On the other hand, a homeowners insurance policy is explicitly made for owner-occupied properties. The insurer covers damages to the property and any liability claims to the homeowners. However, the property must be one's primary residence.

Risks of Not Having Insurance When You are a Landlord

Yes, homeowners and landlord insurance cover damages to the property, personal items of either party, and liability. However, some key differences between both policies can affect your rental business. Without the right insurance coverage as a landlord, you could end up paying out-of-pocket for damage and loss that could have been insured.

For instance, a homeowners policy does not provide coverage for loss of use. Let's assume your rental property was damaged under a covered risk, and your tenant has to move for renovations. If your property is still under a homeowners policy, your insurer will not pay you the rental income reimbursements you would otherwise enjoy under a landlord policy.

Keeping your homeowners coverage means you will pay premiums for a policy that does not protect when needed. Additionally, you would have to pay for any damages that would have been covered under a landlord policy.

How Much is Landlord Insurance?

What to Look for in a Landlord Insurance Policy

Landlord insurance policies are not usually a one-size-fits-all package. Policies will differ depending on the perils the insurer is covering. Knowing what to look for will ensure you get the right coverage for your property.

Coverage for the property and personal property

Although all providers usually cover the property's primary structure, confirming that fixtures and additional structures are part of your coverage is essential. If you have detached structures like garages, fences, and such, any damages could cost you a lot of money. Does the coverage you are settling for cover these?

Also, personal property or contents is sometimes excluded in policies. However, if you rent out a furnished house, it is also essential to look for coverage that protects your contents against damages.

Liability protection

Not all landlord policies offer liability coverage, and most landlords do not consider the implications of not having it. However, liability protection is one of the most essential features to have in a landlord policy.

Most importantly, you must be sure that the limits of your liability protection can make reasonable payouts. Any liability charges could set you back financially, and it's crucial to ensure you are well covered.

Natural disaster coverage

Natural disasters are devastating but often may not be covered in the most basic landlord policies. That doesn't mean you cannot add such coverage. At the very least, protection against fire and storms should be available.

Insurers also offer protection against other calamities as riders to your policy. While these might cost you additional money, they can be a necessary addition, especially if you own property in areas with a high risk for natural disasters like flooding.

Coverage against rent default

Like liability protection, rent guarantee coverage might not be available in every landlord insurance policy. It protects a landlord against income loss when a tenant defaults or falls behind on rent.

When choosing a coverage with loss of rent from default, or adding it as a rider to your preferred policy, consider checking how long the insurer is willing to cover the rental defaults. Also, ask if the payments are for the total rent or partial rent.

How Much Does Insurance for Renting Your Home Cost?

Due to the high risks of damage, landlord insurance is costlier than homeowners insurance by about 25%. Insurance for rental property can vary quite a bit (from $800 to $3,000 per year for a 3 bed/2 bath single-family rental, depending on the state).

However, some landlords pay lower or higher than the average costs. How much insurance you will pay for renting your home will depend on several factors, including:

  • Location: Properties in high-risk areas have higher premiums than their counterparts. These are properties in areas highly susceptible to natural disasters, like floods and earthquakes or high crime rates.
  • Property size: Homes with more square footage also mean a higher premium. The insurer will also look at the number of units to be insured. For instance, if your property is a stand-alone, the premiums will likely be lower than those of a landlord with a multifamily building.
  • Policy type: The coverage you choose will also affect your premium rates. A basic policy, like DP-1, is quite limiting in the risks it covers. However, it is also more affordable than a DP-3 policy, which is more extensive. In addition, adding riders or extra coverage to your policy, like flood insurance, also increases the cost of your landlord insurance.
  • Deductible: The amount of money you are willing to cover from your pocket during a claim. A higher deductible leads to a lower premium. While this might save you money for insurance premiums, it exposes your finances during a claim. What if the damage is of unexpected magnitude? Can your rental business afford to foot such a bill?
  • Condition of the property: Older and poorly maintained properties have pricier premiums than newer and well-maintained ones.
  • Rental prices: If you charge high rental amounts, your premiums will be higher than those of properties with lower rent. That's because with comprehensive landlord insurance, the insurer covers loss of use and will have to compensate you for your lost rental income when your property is uninhabitable as a result of a covered loss.

How to Make Sure You're Getting the Best Deal on Rental Property Insurance

The good news is that finding landlord coverage as an accidental landlord is not that hard, as long as you know where to look. You can ask for recommendations from your current agent, other landlords in your area, or circles or search online.

However, while all of these are viable options, they're not necessarily the way to find the best type of insurance for your rental property.

If you want to save money on landlord insurance, consider using an online insurance broker like Obie - people switching to Obie save 25% on average. Obie makes it easy to compare rates from different insurers, so you can be sure you're getting the best deal.

As a landlord, it's crucial to have insurance for your rental property in case of any damages or accidents. Obie provides insurance coverage for landlords in all 50 states and has insured more than $4 billion in property to date.

Getting started with Obie is easy - simply enter your property address and receive an instant quote. Then, you can choose the coverage that best suits your needs and budget. Visit Obie's website to learn more and get your free quote today.

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