November 23, 2022
  • November 23, 2022

Compare Rental Property Insurance Coverage for Landlords

By on September 30, 2022 0

Rental property insurance, also known as landlord insurance, covers the unique risks incurred when renting out your home or condo for long periods of time. Its coverage includes property damage, liability costs and loss of rental income for landlords who rent out their property. Whether you are renting out your home, a vacation home or an investment property, rental property insurance is important protection against the financial risk associated with tenants living on your property.

What does rental property insurance cover?

Rental property insurance coverage will vary, but policies will generally cover the dwelling or structure of your property, the contents of the landlord’s property, liability coverage and loss of rental income. Much of its coverage is similar to that of home insurancealthough it has some unique features that home insurance lacks and that takes into account the added risk of having tenants on your property.

Housing coverage

Like home insurance, rental property insurance covers material damage to your home, that is, damage to the structure of the house or apartment itself. It will cover, for example, damage to your walls and roof but not your tenant’s personal effects. Cover will only extend to damage caused by a covered peril, and you should make sure you understand which perils, such as fire or lightning damage, are covered by your particular policy.

Owner’s Personal Property Coverage

Contrary to Tenant insurance, rental property insurance does not cover the personal property of tenants living in the property. However, rental property insurance will often include coverage for items left behind by the landlord. For example, if you left a lawn mower in your rental home and it was damaged by fire – and fire is a covered peril in your policy – the damage to the machine would be covered by your property insurance. rental properties. On the other hand, if your tenant bought a room air conditioner damaged by the same fire, the air conditioner and the rest of the tenant’s belongings would not be covered by your rental insurance.

When shopping for rental property insurance, you should check whether personal property coverage is included in the insurer’s standard policy and, if so, how well it will cover your property. Sometimes this coverage is only offered as an option, called an endorsement. In other cases, the coverage will work like appliance insurance for your rental property. This means that only damage to property used for the upkeep of the apartment, such as a washing machine, can be covered, while damage to a television will not be covered.

Liability coverage

Liability insurance will protect you from legal and medical expenses associated with someone being injured on your rental property. If your tenant or a visitor is injured on your property and you are responsible for the injury, rental property insurance may cover those costs up to your policy limits. If you are someone for whom the limits of this coverage are not enough to cover potential liabilities and want to increase your coverage, you can also purchase umbrella insurance for your rental property.

Loss of rent guarantee

This cover provides protection against loss of rent if the property you rent is uninhabitable due to a covered peril. You can think of it as a form of rental guarantee insurance. For example, if fires are covered by your rental home insurance and the damage caused by the fire renders the apartment uninhabitable, rental income protection covers you for rent that your tenants are no longer required to pay. Cover will generally extend for a set period, for example 12 months. Loss of rental income is not always the norm with rental property insurance, so you should check your policy before buying if this type of cover is important to you.

Types of Rental Property Insurance Policies

When shopping for rental property insurance policies, you may notice that there are different types of policies called “forms.” Similar to home insurance, different forms of rental property insurance have different levels of coverage. The descriptions provided below are general, but they can give you an idea of ​​what to expect for each type of form.

DP-1: Rental property insurance is categorized as a homeowner’s policy, or DP, and DP-1 is the cheapest form with the most basic coverage. DP-1 forms generally only cover named perils, which means that if a peril or disaster is not explicitly named in the form, you will not be reimbursed for damages. These policies often reimburse you based on the actual cash value, which means your insurer will pay you for the covered damage minus wear and tear, called depreciation.

DP-2: This form offers slightly wider coverage than the DP-1. Like the DP-1, DP-2 coverage tends to be on a named peril basis. However, DP-2 coverage will generally extend to a wider range of perils. For example, an insurer may offer coverage for damage caused by burglary in its DP-2 policy, but not in its DP-1 policy. The DP-2 form also improves upon the DP-1 by generally providing coverage on a replacement cost basis, meaning damage will be covered at the price it would take to cover the damage at current market prices, regardless of depreciation account.

DP-3: This form, the most expensive, offers the widest range of coverage of the three. This type of policy will provide extensive risk cover, protecting against all risks except those explicitly excluded in the policy. Like the DP-2 policy, its coverage will be provided on a replacement cost basis.

Optional supplements to your rental insurance

The coverage provided by rental property insurance varies by insurer, and coverage that is standard with one insurer may be optional or unavailable with another. Below, we’ve listed some examples of common endorsements you can add to your rental insurance. We recommend researching quotes to find the best combination of price and coverage that meets your needs.

Optional Rental Property Insurance Riders

  • Cover against vandalism: This usually covers willful physical damage to the home. Allstate is an example of an insurer that does not cover vandalism with its rental home insurance but offers it as an endorsement.
  • Coverage by ordinance or statute: This covers loss of value or costs associated with the application of local laws surrounding the repair of property caused by an insured loss. If this type of add-on is important to you, you can turn to State Farm, which offers this endorsement.

Do you need rental insurance if you have home insurance?

This depends on how long you intend to rent the property, but in most cases home insurance cover will not be a suitable substitute for rental property insurance. Having tenants in a rental property creates unique risks that won’t be covered by home insurance, especially if you plan to rent a property for a long period of time.

The type of insurance you will need will depend on how often you rent out your accommodation and the length of stays of your tenants. These distinctions can be divided into three categories: long-term rental, infrequent short-term rental and frequent short-term rental.

Long term rental: If you own an apartment building, a holiday home or a second home that you plan to rent to a single person, a couple or a family for a long period, you will need rental insurance. A long period of time usually means six months or more. The same applies if you rent out your principal residence for a large part of the year. Compared to being a live-in owner, having a rental home increases your exposure to certain risks, such as liability issues related to tenants and their guests. Your insurer will not cover these risks under a home insurance policy unless you actually reside in your home.

Infrequent short term rental: If you only intend to rent your property for a short period, such as a week or a few weekends, your home insurance may indeed cover you. This cover can be included in your policy if you give your insurer adequate notice, extending the usual benefits of home insurance to periods when you temporarily rent out your property. If not, you may be able to purchase an endorsement from your insurer that extends your coverage to temporary rentals. Before committing to a short-term rental, you should contact your insurer to ensure they are informed and that you understand your coverage.

Frequent short-term rentals: If you plan to regularly rent out a property to various people for short periods of time, your property may be considered a business and neither home insurance nor rental property insurance will cover you. Instead, you will need to purchase some form of commercial property insurance to cover the associated risks. For example, Progressive offers “roommate insurance,” also known as vacation rental insurance, to people who rent out their home or room through a service provider like Airbnb or VRBO. These policies include unique features such as coverage against bedbugs and identity theft.

You should be aware that although the service providers themselves may offer a limited form of protection, this will generally not be as comprehensive as roommate insurance offered by an independent insurer. For example, Airbnb has a host warranty policy covering property damage to your home up to $1 million for each listing, but the policy includes limitations that traditional insurance won’t. A limitation is that the request for cover must be submitted within 14 days or before the arrival of the next customer, which gives you a limited time to act and ensure reimbursement.

How much does rental insurance cost?

Rental property insurance is approximately 25% more expensive than an equivalent home insurance policy. Since the whole country average cost home insurance is $1,680, you can expect the national average for rental property insurance to be around $2,100. The higher rates reflect the additional risks posed to a landlord compared to a resident landlord, such as potential loss of rental income and liability for injury posed by tenants and their guests.

If you are interested in rental property insurance, policies are offered by major home insurance companies such as Allstate and State Farm, so you can easily buy and compare rental property insurance quotes online.