Rental Property Insurance: A Guide for Landlords

Renting out a property you own can be a good investment and a steady income stream — especially if your property is in an area with high demand.

Of course, being a landlord comes with its own set of challenges. Maintaining the properties you own, being available at all hours when things break, and dealing with tenants who might not be as prompt as you’d like with the rent are all a part of the job. 

As a landlord, you will need to make sure that you have the appropriate rental property insurance. Here are the factors you should consider:

What Kind of Insurance Do You Really Need for Investment Properties?

You’ll probably need several different types of policies to fully protect your rental properties and your business, but one of the first — and most important — types of insurance to secure before you even welcome your first tenant is landlord insurance.

What Is Landlord Insurance?

Landlord insurance, also known as rental property insurance, is property coverage for buildings or residences that you own and rent to others, including liability coverage for any injuries that may occur on the premises.

The property coverage is similar to homeowners insurance coverage, except for the coverage for belongings inside unless you choose to furnish the home/unit. While homeowners insurance is coverage for the property you live in, landlord insurance is coverage for properties that you rent to others. In insurance terms, a rental property is considered a “non-owner occupied” residence.

What Does Rental Property Insurance Cover?

Rental property insurance protects you from financial losses if the building that you rent out is damaged by a covered peril. If a windstorm rips off siding, or if hail impacts the roof, your landlord insurance will cover the claims resulting from this damage.

Rental property insurance also protects you from liability claims if someone is injured on your property.

Does Rental Property Insurance Cover Tenants’ Property?

It is a commonly held misconception that renters are covered by their landlord’s insurance policy, so let’s set the record straight: No, rental property insurance does not cover your tenants’ belongings. 

Tenants will need to arrange their own renters insurance to make sure they’re protected. As a landlord, you might want to consider requiring your tenants to show proof of renters insurance for this very reason. Accidents and natural disasters can and do happen, and it’s important that both tenants and landlords understand what is covered under each insurance policy.

For more detail on what is covered by renters insurance, be sure to read The Basics of Renters Insurance.

What Other Insurance Policies Should Landlords Consider?

You should consider getting separate policies to protect your property, especially for damage that isn’t covered by your standard policy. Here are some examples to think about:

• Flood Insurance: Basic property policies do not cover damage done by flooding, which is generally defined as water that damages a property that first touches the ground before entering the building. (This differentiates flooding from other types of water damage, such as a hole in the roof or a burst pipe).A surprisingly large number of properties are vulnerable to flooding, even those that aren’t near a large body of water such as a lake or ocean. You can learn more about flood insurance by reading Everything You Need to Know About Flood Insurance.

• Earthquake Insurance: Like floods, earthquakes can cause widespread and catastrophic damage, so they’re typically excluded from basic property coverage. Although most people associate earthquakes with California, fault lines exist in many parts of the country.Talk to your insurance agent or fill out a form here to see if your rental property is at risk and to see if an earthquake policy rider is advisable.

• Personal Umbrella Insurance: If you’ve decided to rent out a property that you own, you might want to consider adding even more liability coverage. Personal umbrella insurance coverage is financial protection for when a legal issue exceeds the liability coverage in your standard policy.Having enough liability coverage is absolutely essential, so talk to your insurance agent about coverage limits.

• Landlord Rent Default Insurance: Becoming a landlord might involve some challenges, such as tenants who stop paying rent. Landlord rent default insurance is specialized coverage that will protect you if your tenant stops paying rent and disappears, or if a tenant is called up on active duty and has to break the lease for military service.This type of insurance can be expensive, but it could be worth investigating depending on your individual situation.

• Rental Income Insurance: Sometimes called fair rental income insurance, this can help replace the rental income you receive from tenants in the event that a covered peril has caused so much damage that your tenants can no longer live in the building. 

Let’s say you own a building that has four rental units in it. A fire breaks out and heavily damages two of the units, and the remaining two units have water and smoke damage. You now have four rental units that are uninhabitable. Half of them might be repaired in a short amount of time, while the other half will take much longer. 

Rental income insurance helps to temporarily replace the lost rental income during the time the units are not able to be rented out.Please note that rental income insurance doesn’t pay for the physical damage done to the building or repairs, and it doesn’t cover lost income when an apartment is simply unoccupied or if your tenant breaks the lease. Rental income insurance is meant to cover the income lost when your tenants can’t occupy the unit and are therefore not paying rent. 

Check with your insurance agent or connect with an Expert Agent today to find out what type of situations are covered by rental income insurance.

What Doesn’t Rental Property Insurance Cover?

There are certain situations that won’t ever be covered by insurance, and it’s up to you as a landlord to make certain that a property is kept in good condition. Here are some of the situations that are excluded:

• Pests, bugs and infestations: Bedbugs, mice, roaches and other creepy-crawlies are not covered by insurance. Make sure that any and all of your rental properties are kept in good and safe condition to prevent such infestations.
• Damage from general wear and tear: Keeping track of maintenance records and schedules is an important part of being a landlord. Damage resulting from ignoring a maintenance issue isn’t covered by your landlord insurance. Address leaks and other maintenance issues quickly — before they balloon into expensive repairs.

What If I’m Just Renting Out a Room in My Home?

If you are renting a room in your home to a tenant, you will need to closely review your homeowners insurance policy. Because renting could increase your liability, your homeowners insurance may not cover you. It might even be a violation of the terms of your existing homeowners insurance policy, and your insurance company could cancel your policy.

Talk to your agent about the room you will be renting. They’ll probably want to know how long you intend to rent the room and how many renters you will have. Here are some questions they might ask:

• Is it being rented to a family member or to someone you don’t know?
• Will the room be offered furnished with your belongings, or will the renter(s) provide their own furnishings?
• Is it a long-term rental or a series of short-term rentals on a platform such as Airbnb?

The answers to these questions will help your insurer to determine what type of insurance policy is most appropriate for your situation. Depending on the details, your agent could keep your homeowners policy as-is, increase your premium, or suggest that you look into rental property insurance.

Landlord or rental property insurance is available to insure an entirely separate residence or an individual room, but availability may vary by insurer if you’re just renting a room. This is because it no longer fits the definition of a “non-owner occupied” property.

Your individual circumstances will determine the type of insurance you need, so it is important to talk to your agent if you’re planning on renting a room — before you accept a tenant.

Renting Your House While Waiting to Sell

If you’re struggling to sell your house but the rental market in your area is hot, renting out your home until you can sell it might seem like a great solution. Be aware that this makes you a landlord — even if you weren’t planning on becoming one — and you’ll probably need rental property insurance.

Talk to your insurance agent or fill out a form here and find out what kind of coverage you need if you are renting a house you no longer live in full-time, even if your intent is to sell as soon as possible.

The Bottom Line

Having properties available to rent can be a good source of income, but being a landlord means you are taking on some additional risks. Make sure that you take the steps necessary to protect your investments and your own finances by lining up sufficient property and liability coverage.

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