A man in a suit explaining insurance on a tablet to a couple.

Landlord vs. Homeowners Insurance for Renting

Note: originally posted on LendingHome.com and LendingHome is now Kiavi.

Adam Luehrs is a writer during the day and a voracious reader at night. He focuses mostly on finance writing and has a passion for real estate, credit card deals, and investing.

Insurance for rental properties

Being a landlord is an endeavor that delivers long-term rewards, security, and the ability to have control over your financial destiny and future retirement.

Investing in rental properties can bring in reliable income and set you up to invest in additional properties if you handle everything correctly from the beginning. You likely already know the importance of having a property inspected, making the right renovation updates to attract renters, and finding the ideal monthly cost of rent.

However, there is one big detail that should not be overlooked and that is insurance. Learn more about landlord insurance versus homeowners insurance, their differences, and some recommendations. It will help you dive into enjoying the benefits of owning a rental property with ease! 

First things first: verify your rental property

First, verify whether or not the property you have identified qualifies as a rental based on the requirements of your current insurance provider. A quick call can get this squared away. This is something to look into before investing in the property.

However, different insurance providers actually have their own requirements. Here are some factors that could prevent the home in question from being considered a rental property.

  • You’ll be renting the home to a family member.
  • The rented portion of the home is attached to a space that you’ll be using as a primary residence. 
  • The rented portion of the home doesn’t have a separate entrance from the space you’ll be using as a primary residence.

You’ll probably be dealing with a standard rental if your goal is to purchase a property that you will rent out to tenants for income. That means that you’ll be purchasing a mainstream policy from an insurance company.

The first big question that you’re probably going to run into from there is whether you need landlord or homeowners insurance for your rental property. Let’s dive in to see the nuts and bolts of exactly what a landlord needs to be protected these days!

Consider timeframes and usage

How often are you renting the property out?

In short, you almost certainly will need to purchase a landlord policy if you intend to rent out your single-family home or investment property on a continual basis. However, there are some situations where homeowners insurance could be a better fit.

A homeowner policy typically covers a home that is rented out for a very short amount of time. This isn’t the strategy to take if you are purchasing a rental property for the sake of using it as a full-time rental. It never hurts to ask a local agent to share some wisdom regarding whether or not a homeowners policy could be appropriate in your case.

Vacation properties

It is important to know if the investment property you’re buying will be used as a vacation rental. Your vacation rental probably can’t be covered by a homeowners policy if you intend to use it to make income. Talk to your insurance agent about getting the right policy for your situation. However, you may be able to get some type of rider or endorsement on your own homeowners insurance if you’ll only be renting out your vacation home occasionally. You will probably be advised to obtain landlord insurance or special vacation rental property insurance when you meet with an insurance agent.

What if you already have one kind of insurance?

One thing to consider is whether or not you need rental property insurance if you already have homeowners insurance. It’s important to be clear about the fact that any type of insurance policy you have for your primary residence will not carry over to your rental property. You will need to procure a new and separate policy that is attached to your new investment property.

If you are planning to turn your current home into a rental property, your homeowner policy may provide coverage for short-term or event-based rental periods.

Homeowners insurance may also provide adequate coverage if you intend to rent out rooms in a single-family home that you are using as your own primary residence. It will be your responsibility to alert your insurance company if you’d like to extend your homeowners insurance to cover a rental situation. If they do not offer it as an option, you can seek an additional policy. Another option is to purchase a hotel or a bed-and-breakfast insurance policy. This insurance coverage is commercial—and tends to be pricey, so keep that in mind. However, the general rule is that all full-time rental properties require their own landlord insurance policies.

With that in mind, let’s focus on the details of rental property insurance.

Landlord insurance coverage

Let’s say you do need rental insurance given all the stipulations above. What does it cover? Landlord insurance typically accounts for the physical dwelling, the personal property of the landlord, and liability coverage. In addition, some policies will actually provide coverage for loss of rental income. This vein of coverage will often provide payment during times when a property cannot be rented out due to damage or repairs.

Dwelling coverage

Dwelling coverage is the most significant chunk of coverage that landlords have to be concerned with. It is the part of the policy that insures your home against peril or damages. The big thing to know about landlord insurance for a rental property is that it covers the physical building itself.

In addition, dwelling coverage typically extends to any other structures that are contained on the property that is included in the policy. This can include things like fences and sheds. Here are some events that are covered nearly universally among policies that offer liability insurance for a rental property:

  • Fire
  • Lightning
  • Wind
  • Hail

Personal property

Most landlords keep a fair amount of personal property stored inside or outside of their rental homes. A landlord policy will typically only provide coverage for items that you use to service your rental property. This can include things like lawn mowers, snow blowers, or power tools. Personal items are not typically covered under this type of policy.

Liability coverage

The liability coverage included in a landlord policy works slightly differently than what you may be used to with your homeowner policy. The liability portion of a landlord policy will only provide coverage related to the physical grounds of the rental. Your coverage will protect you from any legal and medical costs that could be on the table if a person is injured at your rental property.

Keep in mind that your insurance may only be able to cover you up to your policy limits if you are found responsible for an injury that occurs at your rental property. That thought may leave you feeling a bit uneasy. The good news is that landlords actually have the option to purchase umbrella policies (policies that go beyond insurance for just the home and offer more security) that bump up coverage for rental properties. 

The different types of landlord insurance policies

Let’s dive in to look at the different categories for rental property insurance.

Policies are divided into different types that provide differing levels of coverage. Here’s a quick breakdown of the categories you’ll see when you sit down with an agent to discuss landlord insurance for your new rental property:

  • DP-1 insurance is simply a dwelling policy. This is the cheapest form of coverage that you can get. The thing to know about DP-1 is that you’ll only be covered for the very specific disasters or perils that are explicitly listed in your policy. You may not be reimbursed for any type of damage that is not listed within your policy. Your insurance company will probably pay out cash based on damages and depreciation.
  • DP-2 insurance is similar to DP-1 insurance because of the way it typically only pays out for disasters or perils that are specifically named in your policy. However, DP-2 coverage tends to cover a broader range of perils and more overall. One thing that makes DP-2 coverage preferable to DP-1 coverage is that this option tends to cover damage and replacement costs on an at-cost basis.
  • DP-3 insurance often provides extensive coverage for various damages and perils. In fact, this form of coverage will often protect against any perils that aren’t specifically excluded within your policy. Your coverage is paid out on an at-cost basis. Of course, DP-3 insurance can cost quite a bit more than the other two forms that are available.

Don’t assume that optional additions to your policy are too expensive. It’s worth looking into the ways you can bulk up your coverage in certain areas. Some policies offer optional vandalism coverage. This could be an important add-on feature for your policy if your rental home is located in an area where vandalism commonly occurs. Another add-on option that is often overlooked is something called ordinance coverage. This form of coverage actually covers a loss of value associated with repairs that are being done in accordance with local building codes.

Other considerations

Where does flood insurance fit in?

You’ll need to look into separate flood insurance for your rental property. Your landlord policy typically will not cover any costs associated with flood damage. You may actually be required by your lender to obtain flood insurance if the property you’re purchasing is located within a designated flood zone.

Discuss renters insurance with your tenants

The one thing your landlord policy won’t be covering is the personal property of your tenants. This is why you should encourage your future tenants to obtain their own renters insurance when they move into your property to begin a lease.

You may want to do some research regarding the best policies for renters as away to provide potential tenants with some valuable resources. This helpful gesture may make you look more appealing as a landlord when you meet with potential tenants to discuss lease details and rental amounts!

How to shop for landlord insurance for your rental property

There are as many types of landlord insurance as there are types of rental properties! In fact, you’re going to find that what comes built into a policy from one provider is actually an add-on feature that costs extra with another policy provider. You’re simply going to have to roll up your sleeves, do your research, and shop around if you want to find a policy that feels appropriate for your rental property.

There are a couple of tried and true ways to find a good landlord insurance policy for your rental home.

  1. One easy way is to simply ask other landlords and property owners
  2. You can meet with several agents from different companies to compare what’s on the table for each policy that’s out there. There is no pressure to sign up for the first policy you come across. 

In fact, you can prepare by drawing up a chart that highlights the specific coverage categories you want and how much you’d ideally like to pay per year for coverage. You should also know that you aren’t locked in forever just because you sign up for a policy to get through the closing process when purchasing your rental home. You can always swap providers or boost your coverage with your current provider down the road.

In general, it’s a good idea to shop around for rates every few years to ensure that you’re not needlessly adding to overhead costs by paying too much for home insurance for your rental property.

How much does landlord insurance cost?

It’s hard to pin down exactly how much you’ll be spending on landlord or homeowners insurance for your rental property. Your rental property insurance can cost anywhere from a few hundred dollars to a few thousand dollars per year. The actual dollar amount that you put toward landlord insurance will depend on factors like where you live and what you include in your policy.

Taking the next step

Knowing all about home insurance for rental property investments brings you one step closer to snagging that perfect property, getting everything in shape and welcoming your first tenants! Why stop at finding the best rental property insurance? You should also find the best method for financing your dream of becoming a landlord. Kiavi can help with that! Kiavi offers rental loans starting at low rates. And when you combine that, high leverage, and flexible property income requirements—it’s a partnership that can’t be beat!


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