Rental Property Insurance: What It Is and Why You Need It as a Landlord

Investing in rental real estate? Don’t let your property go unprotected.

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Investing in rental property is an excellent way to grow a real estate portfolio, enjoy tax advantages, and earn passive income.

If you've taken the time to find, buy, and manage a rental property, it's essential to protect your investment with a proper insurance policy. Traditional homeowners policies work well on primary residences, but landlords should buy a different type of insurance that protects rental investments. It's called rental property insurance or landlord insurance.

Let's explore what rental property insurance is, what it covers, and how much it costs.

What is rental property insurance?

Rental property insurance, commonly referred to as a landlord policy, is a type of property insurance that covers unique risks associated with having tenants. Most rental property insurance policies protect the owner of the home by insuring the property for liability or losses associated with the property.

Are you renting a room? A vacation home or single-family property? A fourplex? It’s important to have the proper rental property insurance for your specific property type. An experienced insurance agent can help determine the best policy for your investment.

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What does rental property insurance cover?

Coverage varies based on the selected policy and the insurance provider, but in general, a landlord policy will cover:

  • the dwelling and any additional buildings on the property,
  • some contents of the property (such as appliances, fixtures, and water heaters),
  • liability coverage, and
  • loss of rental income.

Like traditional homeowners insurance, rental property insurance covers a dwelling from peril such as fire, lightning, wind, hail, or other covered losses.

However, landlord policies typically don't cover the personal contents found inside the property, including any of the tenant or landlord's personal belongings. Because of this, some landlords require that tenants purchase their own rental insurance.

Landlord policies provide additional coverage that you won’t find in a homeowners policy: liability insurance and loss of rental income.

Liability coverage provides protection if someone is injured on the property, such as a tenant or guest of the tenant. If the landlord is deemed responsible for the injury, it can help cover legal or medical costs.

Then there are times when a property can be damaged, either from a natural event or by a tenant. If a property is inhabitable, the insurance can pay lost rents up to a specified amount to account for what would have been collected if the property was rentable.

How much does rental property insurance cost?

Rental property insurance is more expensive than a homeowners policy, largely because there's a liability in having other people besides the owner reside in the home. Premiums can vary based on the location, age, or condition of the property. In general, premiums cost around 20%–25% more than a traditional policy would. It may cost more if you offer short-term rentals.

Understanding how rental property insurance works and how much it can cost will help you be prepared, protected, and informed when buying a rental property. While it's slightly more expensive than a traditional policy, it covers more than a homeowners policy would and means your investment is adequately protected.

It’s important to speak with an agent who has experience with property rentals to help you determine which policy and provider can offer you the best rate and coverage for your specific rental.

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