The 3 Biggest Insurance Mistakes Landlords Make and How to Avoid Them

Owning rental property can be one of the best wealth-building strategies out there. But with opportunity comes risk - and nothing exposes you to risk faster than having the wrong insurance in place.

As an insurance agent who works with real estate investors, I've seen landlords unknowingly set themselves up for costly surprises when a claim happens. The good news? These mistakes are avoidable. Here are the three biggest insurance mistakes landlords make - and how you can sidestep them.

Mistake #1: Using a Homeowner's Policy on a Rental

Many first-time landlords assume their existing homeowner's policy will cover their property once they move out and rent it to tenants. Unfortunately, that's not the case.

Why it's a problem: A standard homeowner's policy is designed for owner-occupied properties. Once tenants move in, the insurer can deny claims or cancel the policy outright. Imagine a fire breaking out in your rental, only to discover your insurer won't cover a dime because you had the wrong policy type.

How to avoid it: Always switch to a landlord (dwelling fire) policy before tenants take possession. These policies are specifically designed for rental risks and provide liability coverage for landlord-specific exposures.

Mistake #2: Skimping on Liability Coverage

It's tempting to shave a few bucks of your premium by carrying only $100,000 or $300,000 in liability coverage. But in today's legal climate, that amount can be used up quickly.

Why it's a problem: If a tenant or visitor is injured on your property - say a deck railing gives way or ice isn't cleared from a sidewalk - you could be on the hook for hundreds of thousands of dollars in damages. Without sufficient liability protection, your assets are at risk.

How to avoid it: Carry at least $1 million in liability coverage, and strongly consider adding a personal umbrella policy. For a relatively small premium, an umbrella adds an extra layer of protection across your properties.

Mistake #3: Overlooking Vacancy Clauses

Vacancy is a reality of rental property ownership - sometimes you are between tenants, sometimes you are renovating. But did you know your insurance coverage can change drastically when a property sits vacant?

Why it's a problem: Most landlord policies include a vacancy clause. After 30-60 days of vacancy, coverage for risks like vandalism. water damage, or even theft may be reduced or excluded altogether. That means the property you're renovating or marketing to new tenants may be at its most vulnerable and least protected.

How to avoid it: Talk with your insurance agent if your property will be vacant longer than your policy allows. You may need a vacancy permit or special endorsement to maintain coverage. Yes, it might cost a bit more but it's nothing compared to the cost of an uncovered loss.

Final Thoughts

Real estate is all about managing risk and reward. Insurance isn't the most exciting topic, but it's one of the most important tools you have to protect your investment.

By making sure you:

1. Switch to the right landlord policy,

2. Carry adequate liability limits, and

3. Address vacancy issues before they become a problem,

...you'll avoid the three biggest mistakes I see landlords make. That means fewer surprises, more peace of mind, and more freedom to focus on building your portfolio.

Your Turn: Have you run into any of these mistakes or discovered others? Share your experience in the comments so other landlords can learn from it too.