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What Is Landlord Insurance?

Say you own an investment property that you rent out to tenants. You probably want some form of insurance coverage for your property. Landlord insurance rolls multiple forms of coverage into one policy. It covers things like property damage, rent payment defaults and other liabilities. Many times, you can even pick from a few coverage riders, like flood insurance and emergency coverage. As you investigate whether landlord insurance is for you, make sure to consult with a financial advisor who can help you make decisions based on your overall financial picture.

What Is Landlord Insurance?

Landlord insurance policies vary based on the insurance company that’s providing the coverage. In general, though, the idea behind this insurance is to provide a range of coverage for owners of rental property.

A typical landlord insurance policy might include coverage against property damage, liability against tenant lawsuits, medical expense coverage if someone is injured on your property and rental reimbursement in the event you can’t find paying tenants because of property damage. Some policies let you pay to add other forms of insurance protection. These could cover the contents of the unit if you’re renting out a furnished apartment, for example.

While there’s no standard cost for landlord insurance, we can infer some things. For reference, a 2019 report from LendingTree states that U.S. homeowners pay an average of $1,083 a year in home insurance. Because rental properties are inherently riskier, your landlord insurance rates could be around 20% higher than that.

What Landlord Insurance Does and Doesn’t Cover

What Is Landlord Insurance?

Landlord insurance comes with some general benefits that typically fall under the confines of most policies’ coverage. Here’s a review of these customary perks:

  • Property damage: Should your property have damages stemming from fire, natural disasters or gas or electric issues, you’ll be covered.
  • Liability protection: If your tenant or a visitor is hurt on your property due to something in your control, you’ll need this coverage. This could be something like a bug infestation or un-shoveled sidewalks.
  • Rental default/loss of income: This covers when your tenant defaults on their payments or your property becomes unlivable. Should this occur, the policy will cover you for the lost rent money.

Like many insurance policies, there are extras called “riders” that you can choose to add to your coverage or not. Check out some examples below:

  • Emergency coverage: If you need to visit your property to help a tenant with an issue, this will cover your travel costs.
  • Robbery: Some riders will go beyond covering the standard property damages that could occur during a robbery. In this case, the value of your stolen items would be covered too.
  • Coverage for during construction: If you’re doing renovations to your property, this rider will extend your coverage for possible damages during this time period.

Remember that policies from each insurance company will differ in what they cover. There are a few norms for non-coverage, though:

  • Shared property: If you’re living on the same property that you’re renting out, chances are you won’t be able to get landlord insurance.
  • Maintenance issues: Standard mechanical breakdowns like a washer/dryer will usually be up to the property owner to cover.
  • Coverage for possessions: The value of your tenants’ possessions likely won’t fall under the umbrella of your policy.

Who Needs Landlord Insurance?

What Is Landlord Insurance?

If you own a rental property, some form of liability insurance and property insurance is probably advisable. Before you decide on landlord insurance, check out the details of your homeowners insurance policy. This might already provide sufficient coverage for property damage, but it’s worth finding out whether you have liability insurance, too.

You should also check whether renting out all or part of your home jeopardizes your coverage. If you’re renting out a second home that you don’t live in, it’s possible that your homeowners insurance policy might not cover damage to the rental property.

Some kind of liability coverage protects your assets in the event of a legal dispute with a tenant. Landlord-tenant disputes arise for all kinds of reasons, so even if you fully intend to be a conscientious landlord, you might find yourself caught up in a lawsuit or liable for damages your tenants sustain.

You could even be responsible for medical bills that your tenants rack up due to, say, slipping on a stairway that wasn’t up to code or breathing in mold you didn’t realize was present in the unit. Even property owners with the best intentions can run into financial trouble related to liability. However, you can buy liability insurance or umbrella insurance as a stand-alone policy. This would make it so you don’t need to get it through a landlord insurance policy.

You might find that a combination of your existing homeowners insurance and an additional liability insurance policy provides sufficient coverage. However, opting out of landlord insurance means opting out of extras like “loss of income” protection that will pay you the value of the monthly rent on your property in the event that your rental property can’t be inhabited. If a natural disaster damages your property, even if your homeowners insurance policy compensates you for the damage, it won’t pay you the money you’ll lose in rental income while the property is uninhabitable.

Bottom Line

Whether you decide to pay for landlord insurance or opt for some combination of other policies that will protect your property and the rest of your assets, keep in mind that the premiums you pay for insurance on your rental property are tax deductible. One of the tax benefits of being a landlord is that you can deduct the business expenses related to your rental business, and insurance premiums are considered business expenses.

As with any insurance decision it’s a good idea to shop around for affordable coverage that offers good benefits at a reasonable price. Consulting with a financial advisor could help you identify coverage gaps in your current policy setup.

Tips for Your Mortgage Search

  • Before you begin looking for a new home, try to figure out exactly how much you can afford to spend. This will, in theory, keep you from falling in love with a home that’s beyond your financial means. If you want to figure this out, stop by SmartAsset’s affordability calculator.
  • Financial advisors don’t just deal in the world of investing. In fact, financial planning is a major part of what they do. In turn, because a mortgage is one of the largest purchases you’ll make, a financial advisor can help you fit one into your life. SmartAsset’s financial advisor matching tool makes the search for a fiduciary advisor simpler by taking your answers to a short questionnaire and pairing you with up to three matches.

Photo credit: ©iStock.com/dcsliminky, ©iStock.com/Bill Oxford, ©iStock.com/JackF

Amelia Josephson Amelia Josephson is a writer passionate about covering financial literacy topics. Her areas of expertise include retirement and home buying. Amelia's work has appeared across the web, including on AOL, CBS News and The Simple Dollar. She holds degrees from Columbia and Oxford. Originally from Alaska, Amelia now calls Brooklyn home.
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