How Does Landlord Insurance Work?

If you’ve got a property that you want to rent out on a long-term lease, such as a second home or a guest house, you may need landlord insurance

Landlord insurance offers property and liability coverage that protects you and your property if there’s damage or if someone gets hurt.

What Does Landlord Insurance Cover?

Common coverage types you’ll likely see in a landlord insurance policy include:

Dwelling or personal property coverage. Landlord insurance usually covers any physical damage or loss to the property caused by problems such as wind, hail and fire. Landlord policies can also cover damages to appliances, carpeting and other household furnishings that are on your property.

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    You may need to buy extra coverage if you want insurance for vandalism and theft, depending on your policy.

    You can also buy extra insurance in case it costs more to bring the property up to code if it needs to be repaired.

    Other structures coverage. Structures connected to the property, such as a fence, may be protected under the coverage.

    Personal property. This would cover your own possessions that you use for the property, such as a lawnmower.

    Loss of rental income. If damage from a problem covered by the policy makes the home unfit for renters, landlord insurance may reimburse you for the loss of rental income, up to the policy limits.

    Liability insurance. Suppose someone (not in your household) is injured on your rental property. If you’re legally responsible, liability coverage will pay for the person’s medical bills and your own legal fees if you’re sued.

    Other coverages. Additional coverages offered in a landlord policy may include coverage for:

    • Debris removal
    • Fire department service change
    • Trees, shrubs and plants
    • Collapse of property

     

    What Landlord Insurance Doesn’t Cover

    Landlord insurance generally doesn’t cover damage to the renter’s personal belongings. For example, if a tenant’s furniture is destroyed in a fire, your landlord insurance doesn’t cover their belongings. The tenant needs renters insurance for that.

    Landlord policies also typically exclude certain problems, much like homeowners insurance exclusions, such as:

    • Earth movement such as earthquakes
    • Volcanic activity
    • Erosion
    • Mudslides
    • Water damage due to a sewer or drain backup
    • Neglect
    • Acts of war
    • Asbestos removal

    Landlord Insurance Cost

    A landlord insurance policy can cost about 25% more than a homeowners policy, according to the Insurance Information Institute.

    Like homeowners coverage, the cost you pay for landlord insurance depends on the amount it would take to rebuild the property if it’s damaged or destroyed. The cost to rebuild is impacted by the size, age and type of construction of the property. The more expensive it would be to rebuild the home, the higher the landlord insurance cost will be.

    Other factors that influence the cost include:

    Personal property. If the rental property isn’t furnished, you might save money on your coverage. On the other hand, if you’re renting out a home and that’s completely furnished, you’ll need to include personal property coverage in your policy.

    Location. If the rental property is in an area that sees high vandalism, thefts or natural disasters, it will affect insurance costs.

    Security systems. Security systems can lead to an insurance discount.

    Deductible. A deductible is the amount subtracted from an insurance claim check. The higher your deductible, the lower your premiums will be.

    Do I Need Landlord Insurance?

    If you have financed the rental property with a mortgage, most lenders will require landlord insurance.

    On the other hand, if you only plan to rent your primary residence for a short period, such as a week or two, some insurers may include this short-term rental under your homeowners insurance policy. Other insurance companies might require you to purchase a policy add-on to get coverage for a short-term rental. Ask your home insurance agent if you need extra coverage.

    If you rent out your home regularly for short periods—such as a bed and breakfast—you’ll need a business insurance policy.

    Or if you’re renting your home through a service such as Airbnb, you may need home-sharing insurance.

    Source: Forbes.com