The 2024 Landlord Insurance Guide You Can’t Afford to Miss

The surest way to derail any real estate business is a failure to protect yourself and your assets. Insurance isn’t the most exciting topic, but if you don’t properly cover yourself, your corporate entity, and properties, you can put your entire financial well-being at risk. 

Landlords require a different type of insurance product than regular homeowners, and even then, there are nuances to be aware of depending on your particular situation and location. Today, we will demystify some of the most important aspects of landlord insurance to ensure you and your assets are protected.

Disclaimer: All real estate investors must discuss their unique situation with a licensed and experienced real estate insurance broker. The content of this article is for informational purposes only, and should be used in conjunction with advice from an insurance professional. 

Difference between homeowner and landlord insurance

As a landlord you require landlord insurance instead of owner-occupied homeowner insurance. If you’re running a rental property business, there are additional protections that you should ensure you have in addition to what a primary residence homeowner may need. A homeowner policy will cover standard liabilities such as fire, flood, personal belonging protection, theft, among others. While many of these are important for real estate investors, there are additional protections you may require.

As a landlord, you will not need to insure the contents (personal belongings) of your units, that will be the responsibility of your renters—many landlords make this mandatory. That said, you may need additional coverages such as income loss coverage in case of loss of rental income resulting from flood, fire, or significant tenant damage to your property. 

Landlord insurance 101

There are three standard insurance policies that landlords should be familiar with: DP-1, DP-2, and DP-3. The standard DP-1 policy generally covers less than DP-2, and DP-3. For instance, DP-3 policies cover most perils such as theft and vandalism and liability coverage, whereas DP-1 and DP-2 may not. In the case of liability coverage with DP-3 policies, if a tenant injures themselves on your property you can then turn to your policy to cover legal or medical expenses. 

As noted above, most landlord insurance policies don’t cover the contents of the units—this is the responsibility of the tenant. That said, most DP-3 policies cover landlord-owned contents, such as appliances or furniture. DP-3 policies also include loss of rental income, meaning if the unit is off-market while you make repairs. Here are some of the common insurance policy features you’ll want to consider:

• Property protection (structure)
• Personal property protection (contents)
• Liability
• Rental loss protection (only if the unit is unhabitable for various reasons)
• Flood
• Acts of nature (be sure to ask your broker what is covered, and what isn’t)

Rental Loss covers lost income when the property becomes uninhabitable and does not typically protect against tenant default or vacancy. You can buy additional insurance to cover tenant default, which may be worth considering if you can’t cover your mortgage without the rental income and if you think it will be hard to find a new tenant and/or difficult evict a tenant who is withholding rent due to no fault of your own.

It’s worth noting that if you have an HOA, there will be insurance associated with the ownership structure of the HOA. For instance, a condo building with an HOA will have their own insurance to cover certain things. In this case, it’s important to work with your broker to ensure you aren’t doubling up on coverage that is already under an HOA policy.

My pre-paid policy doesn’t expire for many months?

Don’t worry, you can switch insurance providers at any time and you will get a prorated refund for unused coverage. Talk to your insurance broker or a new insurance provider for the details. Don’t let your current policy hold you back!

So what is the cost of landlord insurance?

The general rule is that landlords can expect to pay roughly 15% more for landlord insurance than a standard homeowner policy. According to Insurance.com, the national average cost of a homeowner policy is $1,288. Therefore, most landlords can expect to pay roughly $1,481 a year for landlord insurance.

The higher cost is because insurers are taking on additional risk for landlord insurance because of the presence of renters. Here are some other factors that affect the price of your landlord insurance:

• Security features 
• Age and condition of the property
• Smart home devices that provide early warnings of potential issues
• Number of rental units 
• Location
• Safety equipment on the premise
• High-risk features such as wood fireplaces, pools, and hot tubs
• Long-term vs short-term tenants (different coverage is needed for each case)

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Questions to ask your insurance broker

It is critical that you speak with a licensed insurance broker prior to purchasing any rental property. You should also obtain insurance quotes. Consider using a broker if you don’t already get a packaged deal from an insurance provider because brokers can shop around for the best prices and policies. A single insurance provider however may give you a bulk deal if you work only with them. Be sure to explore both options.

Not only should insurance be a part of your investment due diligence, but many lenders also require it as part of the financing process. When speaking with your broker, here are some questions that may be worth asking:

1. Are there any upgrades/repairs I can do to this property to reduce my insurance costs?
2. Does this policy cover flooding, and what type of flooding (natural disaster vs sewer backup vs tenant error)?
3. What are all the deductibles on my policy?
4. Are there additional coverages I should add on given my location?
5. Are there any insurance discounts that may apply to my situation?
6. Does my policy cover both short and long-term rental periods?
7. What if my property is damaged by the negligence or criminal acts of my tenant?
8. How is the replacement cost or cash value calculated under this policy?
9. Does my policy cover other structures on my property such as a shed or coach home?
10. Should I get a separate umbrella policy to cover myself if I max out my liability coverage?
11. Will having safety equipment on premises reduce my landlord insurance premium?
12. What is NOT included in my landlord insurance?
13. Is my policy covered in the event of a terrorist event?

Be sure to conduct your due diligence with your insurance broker, and speak with other landlords in your area to better understand the most common scenarios that could arise.

6 critical tips when seeking landlord insurance

Tip 1: Make it mandatory for your renters to have renters insurance. You can make this a part of the application process, or ask them for proof of a renter insurance policy when they sign the lease. Thankfully for tenants, the renters insurance cost is quite low, and can run as little as $20 a month.

Tip 2: Consider going with the same insurance provider for all your rental units to get a bundled discount.

Tip 3: Add short-term rental coverage to your insurance policy to give yourself the flexibility to rent out your unit for short-term periods if needed.

Tip 4: If you have a net worth that is higher than the liability coverage on your insurance policy — $1 million for example — you should consider getting a separate policy to cover yourself or LLC if you require more coverage if needed. For instance, if your liability coverage is only $1 million but your net worth is $5 million, you don’t want to max out your liability coverage and then leave you personally liable for the remainder. You can obtain a second policy that will cover your assets should this be the case.

Tip 5: Make sure your rental loss coverage is the same as your gross rents for the entire dwelling to ensure there is zero loss of income.

Tip 6: Consider add-on insurance items if they aren’t on your current policy such as flooding, wildfires, burglary, earthquakes, terrorism events, and vandalism.

Final thoughts

There’s no doubt that adequate insurance coverage can make or break your real estate investing business. If 10 years ago there was flooding on your street and sewers backed up, then you need to ensure you have that coverage. Further, if a tenant slips and falls on the steps and you’re held liable but don’t have any liability coverage, you’re putting your business and personal finances at risk.

Get different quotes, speak with experts in the area like local insurance brokers, and conduct your due diligence alongside a professional insurance professional. That way, you can go to sleep at night knowing that no matter what happens, you and your business will be covered.

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