Landlord Insurance: What Is It & How Much Does It Cover?
Landlord insurance covers your rental property for damages caused by tenants, weather, fire and more. If you are responsible for a tenant’s injuries or property damages, your liability expenses are covered, as well. You can also add several types of endorsements to your policy, such as coverage for defaulted rent payments and wrongful eviction lawsuits.
Landlord policies are sold as a DP-1, DP-2 or DP-3 plan, with DP-1 providing the most limited coverage. Keep reading to learn the various types of landlord coverage and what exclusions you can expect.
What Types of Insurance Do You Need as a Landlord?
Landlords need insurance coverage that will protect the primary dwelling and any other structures that are a part of a rental property. A landlord policy will typically include the following types of coverage:
- Dwelling coverage: Covers the building structure in the event of a covered peril, such as severe windstorms, fires, hailstorms or damage caused by your tenant.
- Other structures coverage: Additional structures on your property should have protection in case of a covered peril. Other structures include sheds, detached garages, detached offices and fences.
- Liability coverage. Protects you if your tenant is injured or their belongings are damaged due to your negligence, such as losses caused by a wobbly stair handle in the common area. This liability coverage provides financial protection for only you. Your tenant needs a renters policy that includes liability insurance if they’re held liable for their guest’s injuries or property damages.
- Personal property used to service the rental. Covers personal equipment and tools used to maintain the rental property, if they are stored in the rental property. Coverage does not extend to other personal property, like recreational vehicles or electronics.
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How Does Landlord Insurance Work?
When your rental property suffers damages due to a covered peril, you can contact your insurance provider and file a claim. Your insurance adjuster will request evidence of the damages and costs, including photos or even send a claims adjuster to assess the damages.
Your insurance adjuster will offer a settlement amount based on the collected information. Depending on your policy, reimbursement is based on the property’s actual cash value (ACV) or replacement cost value (RCV). A policy with ACV coverage pays the original amount spent for the item, minus its depreciated value. RCV coverage pays the original value of the item up to the policy's limit. Deductibles will apply for property damage claims.
You can also file an insurance claim for liability issues. If a tenant sues you (say they were injured because of an unstable staircase in the common area, for instance), landlord insurance will cover your legal expenses. Coverage typically includes attorney fees and the cost to settle the lawsuit.
What Does Landlord Insurance Cover?
Landlord insurance falls under three types that you can choose from depending on your needs and budget: DP-1, DP-2 and DP-3. Each insurance type corresponds to a certain level of comprehensiveness in coverage. The most basic plan is DP-1.
A DP-1 policy is the most basic form of landlord protection. Providing the most limited form of coverage, your rental property is covered for only the following perils:
A DP-1 policy may also cover vandalism, but it is not always included. Check with your provider to see if vandalism protection is covered under your plan. This type of policy can be used for vacant properties, as well.
DP-2 policies offer more coverage than DP-1 policies but provide less protection than DP-3 policies. D-2 policies are named peril policies and will cover you for only the following perils:
DP-3 policies offer the broadest protection for landlords. A DP-3 policy covers the same perils as a D-2 policy and more. Since DP-3 policies operate on an open-peril basis, you’re covered for all perils except those specifically listed as exclusions in your policy.
Your landlord coverage will not cover the belongings of your tenant. They would need to purchase a renters insurance policy for personal property coverage.
What Isn’t Covered?
Landlord insurance will contain coverage exclusions, which are named events that are not covered by your insurer. Below is a table showing common exclusions listed in a landlord policy:
* Talk to your insurance agent about purchasing a standalone policy or an insurance endorsement if you want coverage for any of these perils.
How Much Does Landlord Insurance Cost?
A landlord policy can cost 15% to 30% more than a homeowners policy. Using the average cost of a homeowners insurance policy ($1,213.89 per year) as a benchmark, a landlord policy can range from $1,395.97 to $1,578.06. Actual costs can vary based on several factors, including location and property value.
Other Types of Rental Property Insurance for Landlords
A base landlord policy provides several types of coverage but you may want to increase its comprehensiveness. Landlords can choose from several types of insurance endorsements to customize their coverage based on their needs.
You will need to purchase flood insurance if your property is vulnerable to floods because landlord insurance will not flood damages. Flood plans can be purchased from private insurance carriers or the National Flood Insurance Program (NFIP).
As a landlord, you can purchase building coverage, which typically insures the following:
- Electrical and plumbing systems
- Furnaces and water heaters
- Refrigerators, cooking stoves and built-in appliances like dishwashers
- Permanently installed carpeting
- Permanently installed cabinets, paneling and bookcases
- Window blinds
- Foundation walls, anchorage systems and staircases.
- Detached garages
- Fuel tanks, well water tanks and pumps and solar energy equipment
Your flood policy will not protect your tenant's belongings. Tenants would need to purchase a separate flood insurance policy if they want to insure their personal belongings, like clothes, furniture and electronic equipment.
Note: If you’re financing your rental property, your lender may require you to have flood insurance if you live in a high-risk zone.
Your landlord policy will exclude earthquake coverage, so you may want to buy earthquake insurance if you live in a high-risk area. Earthquake insurance provides the following types of coverage:
- Damage to your dwelling's original structure
- Damage to other structures on the property
- Damage to your personal property (tools and equipment)
Earthquake insurance may be required by your lender if your property is being financed and is located in an area with a high risk of earthquakes. Like flood insurance, your tenant will need to purchase earthquake coverage separately if they want to insure their personal belongings.
Endorsements to Your Landlord Policy
You can purchase the following endorsements to supplement the coverage in your landlord insurance policy:
- Eviction insurance: Also called eviction expense reimbursement coverage, this endorsement provides a financial cushion when an attempted tenant eviction undergoes a costly and lengthy judicial process. Ongoing lawsuits can take one or more months and you may not be collecting rental income on that unit during that time.
- Wrongful eviction insurance: Provides liability coverage for your legal expenses when a previous tenant sues you for “wrongfully” evicting them. Talk to your insurance agent if your base liability protection includes this coverage or if you need to purchase it.
- Rent loss insurance: Covers loss of income when a covered peril renders your tenant’s unit uninhabitable and they must make temporary living arrangements elsewhere. Income loss due to COVID-19 may not be covered.
- Rent default insurance: Provides financial assistance when your tenant cannot pay their rent due to death or military deployment. Coverage may range from three months of defaulted payments to a year.
- Theft protection: Reimburses you for stolen items, such as weed whackers, lawnmowers or any other equipment used to maintain your rental property.
- Building codes: Reimburses you for the cost to renovate your rental property and restore it to local building codes after a covered accident.
- Rental property under construction: Financially safeguards your property if it is damaged while undergoing construction or renovation.
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