Landlord insurance has become very important due to the fast-growing and lucrative opportunities in real estate. Although the real estate business is lucrative, certain risks affect it.
As a wise investor, one of your main roles is to make sure that you protect your investments from these risks. To be able to do this, you first need to understand what these risks are and how to mitigate or even tackle them.
As a result, we will be giving you a piece of in-depth information on landlord insurance, ranging from how to go about it, what it protects, what it doesn’t protect, and many more.
Therefore, all you have to do is relax and grab some popcorn and a bottle of chilled Coke while we walk you through this informative article.
To start with, let’s understand what this insurance is really about.
What is Landlord Insurance?
This type of insurance is designed to provide financial protection and cover to landlords who rent their homes or apartments to tenants.
Landlord insurance provides financial coverage and protection against a variety of risks that landlords may face. These risks include loss of rental income, legal liability claims, etc.
It’s still important that you understand that there are certain risks that this insurance doesn’t cover. But first, let’s see those things that are covered by landlord insurance.
Types of Landlord Insurance
The following are the types of landlord insurance:
- Dwelling coverage
- Liability coverage
- Medical payments coverage
- Rental income coverage
- Business property coverage
- Loss of use coverage.
Overview of the Types of Landlord Insurance
1. Dwelling Coverage
This is a type of landlord insurance that helps pay for repairs or rebuilding costs if your rental property is damaged by a covered event, like a fire or storm. It also covers any attached structures, like garages or sheds.
2. Liability Coverage
Liability coverage helps to protect you financially if someone is injured on your rental property. It can also help cover legal expenses in case you’re sued.
3. Medical Payments Coverage
Medical payment coverage helps pay for medical expenses for someone who is injured on your rental property, irrespective of who is at fault.
This coverage can be used even if the injured person decides not to sue you.
4. Rental Income Coverage
This type of landlord insurance helps to replace lost rental income in a situation where your rental property is damaged and your tenants have to move out while it’s being repaired.
Rental income coverage covers your mortgage, taxes, and other expenses while your property is being repaired.
5. Business Property Coverage
Business property insurance coverage helps to protect any business property that is damaged or destroyed on your rental property. Examples of such properties include things like office equipment, computers, and inventory.
6. Loss of Use Coverage
This is a type of landlord insurance that helps to cover additional living expenses in case your tenants have to move out of your rental property while it’s being repaired.
What Landlord Insurance Covers
The following is a list of what landlord insurance covers:
- Property damage
- Loss of rental income
- Liability claims
- Property damage caused by tenants
- Equipment breakdown coverage
- Personal property coverage
- Fair rental value coverage
- Additional living expenses coverage.
1. Property Damage
This is usually the first type of coverage that is listed in most landlord insurance policies. This insurance coverage aims to protect landlords from financial setbacks that may arise due to damage to the structure of the rental property.
It covers damage to the walls, roofs, and other parts of the structure. Also, this coverage covers damage to appliances, fixtures, and other permanently installed items.
This is important coverage because it can help landlords get their rental property back in working order after a covered event.
2. Loss of Rental Income
Loss of rental income is also known as business interruption coverage.
This coverage is designed to help landlords recover lost income if their rental property is affected by a covered event, such as a fire or storm.
It covers things like lost rent and operating expenses, such as utilities and maintenance costs. This coverage is important because it can help landlords continue to make money even when their rental property is out of commission.
3. Liability Claims
This coverage protects you if you’re found liable for bodily injury or property damage to a tenant or visitor. It can cover things like medical expenses, legal fees, and other related costs.
This coverage is important because it can help protect landlords from costly lawsuits.
4. Property Damage Caused by Tenants
This type of coverage protects landlords from damage caused by their tenants.
For instance, if a tenant accidentally starts a fire or causes water damage, this is the coverage for it. It’s important to note that this type of coverage doesn’t usually cover intentional damage caused by tenants.
5. Equipment Breakdown Coverage
This coverage is also known as equipment service line coverage. It covers the cost to repair or replace major appliances or equipment that are part of the rental property.
Such types of equipment as air conditioners, furnaces, or even water heaters. This is important coverage because it can help landlords avoid expensive repair bills.
6. Personal Property Coverage
This coverage is different from property damage coverage, which only covers the structure of the rental property. Personal property coverage protects a landlord’s personal belongings that are stored on the rental property, such as furniture, appliances, tools, etc.
7. Fair Rental Value Coverage
This coverage helps landlords regain lost rental income if their property is damaged and they can’t rent it out for some time.
It can cover the difference between the rent that would have been collected and the actual rent collected while the property is being repaired.
Let’s use an example to illustrate how this coverage works. Let’s say that a landlord has a rental property that generates $1,000 per month in rent. A hurricane damages the property and makes it uninhabitable for three months.
The landlord’s policy has fair rental value coverage for $1,000 per month. This means that the policy would pay the landlord $3,000 for the three months that the property was not lived in. Easy peasy, right? Okay, let’s continue with the last one.
8. Additional Living Expenses Coverage
Last but not least is the additional living expense coverage. This coverage provides money to help pay for things like temporary housing, food, and other living expenses.
Let’s say, for example, that if a fire makes the rental property uninhabitable, this coverage could help pay for a hotel stay while repairs are being made.
We can now head over to the things that are not covered by landlord insurance.
What Landlord Insurance Does Not Cover
The following are not covered by landlord insurance:
- Flood damage
- Earthquake damage
- Pest damage
- Damage caused by intentional acts or neglect
- Losses due to war or terrorism.
1. Flood Damage
Most landlord insurance policies don’t include coverage for flood damage.
This is to say that if your rental property is damaged by a flood, the insurance policy won’t pay for the repairs. If you need your properties to be protected from a flood, then you can purchase separate insurance for it.
2. Earthquake Damage
This one is very straightforward. If an earthquake damages your rental property, it’s usually not covered by landlord insurance.
Earthquake insurance is typically a separate policy that you can purchase in addition to landlord insurance.
3. Pest Damage
Landlord insurance typically doesn’t cover damage caused by pests, such as termites, rodents, or insects. That’s because it’s usually considered a preventable problem that can be avoided through proper maintenance and pest control.
4. Damage Caused by Intentional Acts or Neglect
This one is quite self-explanatory. Now let’s say you intentionally damage your rental property, or you neglect to maintain it properly, and it’s damaged as a result. Your landlord’s insurance policy won’t cover it.
The essence of this is to prevent people from intentionally damaging their property and then turning to their insurance provider for claims.
5. Losses Due to War or Terrorism
It’s pretty rare for this to happen, but if it does, landlord insurance won’t cover the damage. This is because it’s a type of risk that’s too unpredictable and difficult to insure against.
We can now move away from the things that landlord insurance doesn’t cover. Let’s take a look at the cost of this insurance.
Benefits of Landlord Insurance
The following is a list of the benefits of landlord insurance:
- Landlord insurance can help cover the cost of repairing or rebuilding your rental property if it’s damaged
- It can help cover your legal costs if you’re sued by a tenant or other third-party
- This insurance can help replace lost rental income if your property is damaged and you can’t rent it out
- Provides liability coverage if someone is injured on your property
- It can provide peace of mind, knowing that you’re protected from a wide range of risks.
How Much Does Landlord Insurance Cost?
The cost of landlord insurance varies depending on several factors, which include the location of the property, the value of the property, and the coverage options you choose.
However, the average cost for homeowners insurance coverage is $1,582 annually, according to a Forbes Advisor analysis of home insurance costs.
Factors that Affect the Cost of Homeowners’ Insurance
Below is a list of the factors that affect the cost of homeowner’s insurance:
- Natural Disasters
- Crime Rates
- Age of Building
- Tenant Characteristics
- Laws and Regulations
- Claims History.
Locations that are prone to natural disasters such as hurricanes, earthquakes, tornadoes, wildfires, or floods are considered high-risk for property damage.
Hence, insurance companies usually charge higher premiums in these regions to offset potential losses from natural disasters.
Areas with higher crime rates may experience increased risks of property damage or theft, leading to higher insurance costs.
Age of Building
Older buildings may have higher insurance costs due to a higher likelihood of wear and tear, leading to potential maintenance issues.
The type of tenants and their occupancy behavior can influence insurance rates. For example, student rentals or short-term rentals like Airbnb might be considered higher risk.
Laws and Regulations
Different places have different laws that protect them. So laws and regulations regarding landlord-tenant relationships can also impact insurance costs. For example, areas with tenant-friendly laws may lead to higher liability risks for landlords, affecting premiums.
The frequency and severity of insurance claims in a particular region can affect insurance costs. Areas with a history of frequent claims may have higher premiums.
Tips to Save Money on Landlord Insurance
- Shop around for quotes from multiple insurers.
- Choose the right coverage for your needs.
- Make sure your rental property is in good condition.
- Install safety features like smoke detectors and security systems.
- Bundle your policies with the same insurer.
- Stay claims-free.
FAQ on Landlord Insurance
Do I need landlord insurance if I have homeowners insurance?
It depends. Homeowner insurance only covers your primary residence. If you have a rental property, you'll likely need a separate policy to cover it.
Does landlord insurance cover damage caused by tenants?
Yes, but with some limitations. Landlord insurance typically covers damage caused by tenants, but it may not cover intentional damage or damage that's caused by a tenant's negligence.
Does landlord insurance cover damage caused by natural disasters?
This also depends on your policy. Landlord insurance typically covers damage caused by some natural disasters, like hurricanes and tornadoes, but it may not cover others, like floods or earthquakes. If you live in an area that's prone to a specific type of natural disaster, you may need to purchase additional coverage.
Does landlord insurance cover lost rental income?
Well, some landlord insurance policies include loss of rental income coverage, which can help you recoup lost income if your rental property becomes uninhabitable due to a covered event.
What's the difference between landlord insurance and homeowners insurance?
The main difference is that landlord insurance is designed specifically for rental properties, while homeowners insurance is designed for primary residences. Also, Landlord insurance typically has higher liability limits, and it may include coverage for things like loss of rental income, which homeowners insurance usually doesn't include.
With every detail we’ve gathered from this article, you can agree with me that landlord insurance is not just an option; it’s a necessity for anyone renting out properties. It provides you with comprehensive protection for your investments, financial security, and peace of mind.
Landlord insurance is a specialized type of insurance that’s designed to protect you as a landlord from the unique risks that are associated with renting out property.
You must carry out thorough research and compare several quotes before purchasing landlord insurance.