Being a landlord can have several advantages—rental income, property value appreciation, and the potential to expand your real estate portfolio. But it also comes with its fair share of risks. From accidental damage caused by tenants to legal disputes and loss of rental income, there’s a lot that can go wrong. That’s where landlord insurance comes in. If you’re renting out a property, this type of coverage is essential to protect your investment and give you peace of mind.
What is Landlord Insurance?
Landlord insurance is a specialized type designed to cover the unique risks of renting out a property. While standard home insurance covers the building and your personal belongings, it won’t cut it if you’re renting the place out. Landlord insurance, on the other hand, provides coverage tailored to rental properties, protecting you from things like tenant-related damages, loss of rent, and legal liabilities.
What Does Landlord Insurance Cover?
Landlord insurance typically offers a range of coverage options, and not all policies are the same. It is very important to check the fine print to make sure exactly what a landlord insurance policy covers before you select one.
Here are few examples of points to pay attention to:
1. Property Damage
This is the bread and butter of any landlord insurance policy. It covers the cost of repairing or rebuilding your property if it’s damaged by events like fire, storms, floods, or vandalism. Unlike standard home insurance, landlord insurance also covers damage caused by tenants, whether intentional or accidental.
2. Loss of Rental Income
If your property becomes uninhabitable due to an insured event (like a fire or flood), loss of rental income coverage steps in to cover the rent you would have received while the property is being repaired. This is crucial because it helps you maintain cash flow even when your property is out of commission.
3. Liability Protection
This part of your policy covers you if a tenant or visitor gets injured on your property and decides to sue you. Liability protection can cover legal fees and compensation payouts, which can be substantial if someone is seriously injured.
4. Rent Guarantee Insurance
Some policies offer rent guarantee insurance, which covers unpaid rent if a tenant fails to pay. This can be a lifesaver if you’re dealing with a tenant who suddenly can’t or won’t pay their rent, and you need to cover your mortgage or other expenses.
5. Legal Expenses
Disputes with tenants can get messy and expensive. Legal expenses coverage helps pay for the costs associated with evicting a tenant, dealing with disputes over rent, or any other legal issues that might arise during a tenancy.
6. Contents Insurance
If your rental property is furnished, contents insurance is a good idea. It covers items like furniture, appliances, and electronics that you provide in the rental. Keep in mind that this won’t cover your tenant’s personal belongings—they need their own renters insurance for that.
What’s Not Covered?
While landlord insurance is comprehensive, it doesn’t cover everything.
Here are a few examples of things that are typically excluded:
- Tenant’s Personal Belongings: As mentioned, your tenant’s possessions are not covered. They’ll need renters insurance for that.
- Wear and Tear: Routine maintenance and normal wear and tear aren’t covered. If the carpet is simply old and worn, that’s on you.
- Void Periods: If your property is unoccupied for a certain period (usually 30-90 days, depending on the policy), your standard landlord insurance might not cover damage or loss occurring during that time. You may need additional cover for unoccupied properties.
Additional property
It is possible to get a landlord insurance policy that covers more than just the exact property that is rented out.
It is important to check the policy´s rules for additional property to know what is covered and what is not. This can help you make safer decisions, e.g. about where to store items. As always, you also need to check the deductibles and limits, and keep in mind that they might be different for additional property.
Other structure
A landlord insurance policy can include cover for detached structures on your rental property, e.g. a detached garage, shed or fence. Sometimes, the policy will only cover the structure itselt and not anything that is stored in it. Make sure you understand exactly how comprehensive the coverage is before you sign anything.
Equipmment stores
A landlord insurance policy can cover equipment that you keep on site to help maintain the rented property.
Personal property used to service the rental property
A landlord insurance policy can cover equipment used to service the rental property, such as lawn mowers and snow blowers.
Limits and deductables
Limits
Landlord insurance policies typically come with limits for how much each section of the policy will cover. Generally speaking, higher limits are linked to higher insurance costs.
Note: In many jurisdictions, being underinsured is dangerous, becaus the insurance company is entitled to reduce your insurance claim payout accordingly.
Example: You insure your property for $1 million, but it is actually valued at $2 million. Later, there is damage, and you file a claim for $400,000. The insurance company investigates and finds out that you are underinsured. In some jurisdictions, the insurance company can now reduce the payout by 50% since you were only 50% insured. The fact that $400,000 is less than $1 million will not help you if your property is in one of those jurisdictions; you will only get $200,000 (minus the deductable).
It is good to know at least the basics about insurance law in your jurisdiction before you go shopping for insurance, including landowners insurance.
Deductables
Most landlord insurance policies will require that the policy holder pays a deductable when a claim is approved, i.e. a specified amount of money that will not be covered by the insurance company and must be paid by the claimant.
Example: Your $10,000 claim is approved, but the deductable is $1,000. You will therefore only get $9,000 from the insurance company.
Understanding the rules regarding deductables is very important when you compare landlord insurance policies.
With some insurance companies, you can chose between several different deductables when you sign up, and chosing a higher deductable will decrease the annual insurance cost.
Do You Really Need Landlord Insurance?
In short, yes. While landlord insurance isn’t a legal requirement, it’s highly recommended if you’re renting out a property. Mortgage lenders often require it as a condition of the loan, so you might not have a choice if you’re financing your property through a mortage loan.
Even if it’s not required, landlord insurance is a smart choice. The potential costs of damage, legal disputes, or lost rental income can far outweigh the cost of the insurance premiums. Without it, you could find yourself out of pocket for thousands of pounds.
How Much Does Landlord Insurance Cost?
The cost of landlord insurance varies depending on factors like the size and location of your property, the level of coverage you choose, and whether you add any optional extras like rent guarantee insurance. It also vary depending on country and region. In the United Kingdom, on average, you might pay anywhere from £120 to £250 per year for a basic policy on a single property, but this can increase significantly if you add more coverage.
To get the best deal, it’s a good idea to shop around and compare quotes from different insurers. Be sure to check what’s included in each policy—sometimes, the cheapest option isn’t the best one if it leaves you underinsured or forces you to pile on costly add-ons.
Examples of factors that can impact the cost of your landlord insurance policy:
- How comprehensive the policy is
- Size of the deductible (or deductibles, as different types of property can have different deductibles)
- Upper limits for the coverage
- The credit worthniess of the applicant (especially in the United States)
- The applicant´s history with the insurance company
- Using the same insurance company for several different insurance needs can, in some cases, make it possible for your to negotiate a discount.
- Location of the property
- Size of the property and any buildings
- Value and condition of any buildings
- Age of the building or buildings
- Number of rental units on the property
- The presence of outbuildings or any other additional structures on the land.
- Security features, such as gates, smoke detectors, burglar alarms, security cameras, anti-fire sprinklers, fire extinguishers, fire-resilient doors, etcetera.
Final Thoughts
Landlord insurance is an essential safety net for anyone renting out a property. It protects your investment, ensures steady rental income, and provides peace of mind that you’re covered if things go wrong. Whether you own one property or a portfolio, the right landlord insurance can save you a lot of stress and financial trouble in the long run.