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The BiggerPockets Guide to Landlord Insurance

The BiggerPockets Guide to Landlord Insurance

3 min read
Nathan Miller

Nathan Miller is a landlord, real estate investor and the founder of Share Tweet Share

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If you own rental property, you must ensure you and your investment are properly protected. The right landlord insurance policy will cover any unexpected financial losses or massive expenses, protecting the profitability of your operation. It can also protect you from legal trouble. But what types of policies do you really need as a landlord?

Related: Understanding Rental Property Depreciation: A Real Estate Investor’s Guide

What Does Landlord Insurance Cover?

Landlords’ insurance policies should cover property damage, liability, and lost rent if the property becomes uninhabitable. This insurance is a bit different than homeowners insurance and typically includes two types of coverage: property and liability protection. It’s especially important to remember to make the change from a homeowner’s policy to a landlord policy if you previously occupied the property.

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How Much Does Landlord Insurance Cost?

According to the Insurance Information Institute, landlord policies generally cost about 25 percent more than a standard homeowners policy to pay for increased protections. Your mortgage lender will typically require proof of a valid landlord insurance policy.

However, remember that insurance premiums are tax deductible for investors.

Are Landlords Required to Have Insurance?

Technically, landlords aren’t legally required to have any type of insurance. However, if you’ve taken out a loan on the home, the lender may require property owners to have a basic homeowner’s insurance policy. Just note that a conventional home insurance policy may not protect you if you’re renting out the property.

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Types of Landlord Insurance Coverage

To better understand the options available to landlords, here is a breakdown of additional coverage options to discuss with your insurance company.

1. Property Protection

Insurance policies designed for rental dwellings cover damage to the home from disasters like fire, lightning, wind, hail, ice, and snow. Standard landlord policies typically do not cover flood damage, so you will need to take out a separate flood insurance policy.

Insurance policy providers often refer to this type of protection as “dwelling coverage.”

2. Personal Property Protection

Landlord policies cover personal property left on-site for maintenance or tenant use, such as appliances and lawnmowers. But they don’t cover tenant property—only renters insurance does that.

Landlords can require that their tenants get renter’s insurance as a condition of the lease. One of the major benefits of renter’s insurance is avoiding disputes about who will replace personal property if damage occurs.

3. Liability Insurance

Landlord policies can include liability coverage. If someone falls on your property, for instance, liability protection covers legal fees and medical expenses.

Landlord Insurance Options

4. Rent Loss Protection

If damage renders your property uninhabitable, your landlord policy will cover the lost rent and pay you the amount of money you would have made in rental income. Rent loss insurance helps you continue to make mortgage payments when a tenant cannot occupy the home.

Rent loss protection isn’t necessarily a magic bullet. Many landlords are finding that coronavirus isn’t always a covered loss.

Landlords may also be able to get a form of business interruption insurance. This protects you from interruptions to their stream of rental income. For example, if an injury sidelines you, this compensation helps you keep things running.

5. Flood Protection

Flood insurance policies are run by the federal government through the National Flood Insurance Program (NFIP) and must be purchased in addition to your landlord insurance policy. Your flood insurance policy can include coverage for the building, its contents, and any replacement costs.

6. Acts of Nature Protection

Your dwelling coverage might limit or exclude certain types of damage. Your standard landlord insurance policy doesn’t always cover acts of nature such as earthquakes, hurricanes, and tornadoes. If you live in an at-risk area, discuss additional peril protections with your insurance provider. (Head’s up: some companies call this coverage “acts of God.”)

RELATEDProperty Insurance: Why Coverage Gets Dropped & How to Handle It

7. Cash Value vs. Replacement Cost

When repairing or rebuilding damaged property, an actual cost value policy will pay you the actual cost minus the depreciation value of damaged items. For example, if you purchased an appliance for the property that gets damaged in a fire, your insurer will value the actual cost of that appliance now (with depreciation) and pay you that amount. So, if you bought a washing machine for $600 three years ago, the insurer will depreciate the value of the washing machine to reflect its current three-year-old value. They won’t give you the amount needed to purchase an equivalent replacement.

However, replacement value policies will provide a new washing machine with no out-of-pocket cost. Yes, actual cost coverage costs less. But if you would rather insurance take care of everything, consider replacement cost coverage.

As you can see, there are many things that must be considered when choosing your landlord insurance policy. It is important to read the policy carefully, discuss options with your agent, and ensure that you are fully protected.

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Which of these policies do you have?

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