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Landlord Insurance vs. Homeowners Insurance

Updated
Dana George
By: Dana George

Our Insurance Expert

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Life is busy, and it's easy to allow small details to fall through the cracks. One thing none of us can afford to forget about is homeowners insurance, no matter how busy we get. Here, we cover the differences between homeowners insurance and landlord insurance and tell you when it's time to trade one type of coverage in for the other.

What's the difference between a homeowners policy and landlord insurance?

While they have a lot in common, it's impossible to discuss landlord insurance vs. homeowners insurance coverage without pointing out the differences. It's those differences that can cost you if you fail to carry the correct coverage.

Coverage

Homeowners insurance covers your home inside and out. Let's say a storm blows through and destroys your home. The structure and all your personal property are considered a covered loss. The same is not true for landlord insurance. If a storm blows through and destroys your rental property, only dwelling coverage is in place. The tenant's personal possessions are not covered. It's up to the renter to protect their personal belongings by purchasing a renters insurance policy.

In a nutshell: Landlord insurance is designed to solely protect the policyholder. Rental property insurance is designed to protect the personal possessions of renters.

Cost

According to the Insurance Information Institute, you'll pay approximately 25% more for a landlord policy than you would for a homeowners insurance policy for the same property. The reason is that insurance companies tend to receive fewer claims for owner-occupied homes than for tenant-occupied rentals.

The good news is that 100% of landlord insurance premiums are tax deductible due to its status as a business expense.

Limitations

Landlord insurance policies tend to be less comprehensive than homeowners insurance. Here's a sampling of what most landlord insurance policies do not cover:

  • Theft
  • Vandalism
  • Building code upgrades
  • Flood damage
  • Earthquake damage

These coverages can typically be purchased separately. For example, if a home is located in a flood plain, it's a good idea to spring for flood insurance to protect rental property.

It's important to note one very important thing that landlord insurance does generally cover: Liability coverage. That means that the landlord is covered if the mail carrier falls and breaks their leg on the front porch or the tenants have a guest over who burns themselves while cooking.

Who needs landlord insurance?

Home insurance does not typically cover property damage if the house is not occupied by the homeowner. If you're renting out property to another party, you should carry landlord insurance to guarantee that claims are paid if peril strikes. But it's not just peril. Some landlord insurance policies cover the loss of rental income if the home becomes uninhabitable or the tenants stop paying rent for some other reason.

Types of landlord insurance

There are three types of landlord insurance. The level of protection you are afforded depends on the type you choose.

Dwelling Policy 1 (DP-1): Limited coverage

A basic policy that reimburses the actual cash value (ACV) of the loss. This means the landlord will receive only the depreciated value of the property which may be far less than the actual cost of repairing or rebuilding. Here's a list of perils a DP-1 policy will cover:

  • Fire and lightning
  • Internal explosion and external explosion
  • Windstorm and hail
  • Riot and civil commotion
  • Smoke
  • Aircraft
  • Vehicles
  • Volcanic explosion
  • Vandalism and malicious mischief

Dwelling Policy 2 (DP-2): Moderate coverage

Similar to DP-1, but pays out the replacement cost value (RCV). DP-2 may also include loss of income coverage. Other covered losses include:

  • All perils from DP-1
  • Burglary damage
  • Weight of ice and snow
  • Glass breakage
  • Accidental discharge or overflow of water or steam
  • Falling objects
  • Frozen pipes
  • Electrical damage
  • Collapse
  • Tearing apart
  • Cracking
  • Burning
  • Bulging

Dwelling Policy 3 (DP-3): Most comprehensive coverage

DP-3 is an "all-risk" policy that provides the most complete protection. As mentioned, these policies are designed to protect the landlord. The more comprehensive the coverage, the better protected the landlord.

How to switch from homeowners insurance to landlord insurance

Switching from homeowners insurance to landlord insurance is not difficult. In fact, the first step is to call your existing insurance company to inquire about coverages and prices. The next step is to call several other companies to ensure that you're getting the best landlord insurance available.

It's important to note that landlord insurance is not required by law. However, if there is an outstanding mortgage, most lenders require that landlord insurance remain in place as long as the homeowner no longer resides there. If the homeowner chooses to move back in, the insurance provider can write a new homeowners insurance policy.

FAQs

  • Yes. A landlord insurance policy is all that stands between a landlord and financial loss. Landlord insurance is designed specifically to protect the landlord if a property is damaged or destroyed. It can also cover renters who fail to make payments as agreed and periods when the home is uninhabitable, such as when it has sustained storm damage.

  • There are three types of landlord insurance, ranging from most basic to comprehensive.

  • Yes, because it is considered a business expense, the full premium cost for landlord insurance is tax deductible.

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