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Understanding Landlord Insurance

Whether you rent out one property for extra cash or own an entire apartment community, it’s vital to protect yourself with a landlord insurance policy. If you’re a new landlord, you may be unaware that a homeowner’s policy simply won’t cut it in most cases. In fact, unless you live in the same home as your tenant, you’ll want to look into landlord building insurance to protect your investment.

What is Landlord Insurance?

Much like a homeowners policy, landlord insurance coverage for rental properties will prevent you from potentially losing everything during a natural disaster or other catastrophic event. However, just as your homeowner’s policy requires certain riders to be fully effective, you’ll need to carefully compare landlord insurance options. For now, we’re going to start with the three core basics that every policy should provide.

Liability Protection – Preventative maintenance issues such as cracked sidewalks or an icy parking lot could add up to a major financial loss. Fortunately, liability insurance helps cover medical and legal bills.

Property Damage – Natural disasters, vandalism, gas/electric malfunction and irresponsible tenants could cause massive damage to your rental property. Your best bet is to get landlord property insurance that provides replacement value or cost. Try to steer clear of less effective, cheap landlord insurance policies that offer actual value instead. Making the mistake of selecting the wrong policy could cost you a lot of money in the long run.

Rental Default/Lost Rental Property Insurance – Much like MLB teams taking out contract insurance policies for big name players, you’ll want to ensure that you don’t lose a lot of money if your home goes on the disabled list. Essentially, this portion of your landlord house insurance is there to cover your losses if the property becomes temporarily uninhabitable. In other words, if you can’t collect rent for a couple of months because of a massive rodent infestation, your policy will reimburse you for your lost rental income.

Every landlord home insurance quote should reference these three policy provisions, along with how much coverage you’ll have in each category.

What Do Landlord Insurance Companies Mean by DP?

You can expect landlord insurance quotes to contain some unfamiliar jargon. A common term that confuses many people is DP with a number after it. DP means ‘dwelling property,’ AKA the house or building you’ll be renting out. The state your property resides in will make a difference in the exact coverage provided by DP-1, DP-2 and DP-3, so be sure to verify your state’s particulars.

Here’s a basic guide to the differences between these landlord protection insurance options.

1. DP-1 – This is the most basic, bare bones policy you can get. If you’re looking for cheap landlord home insurance, this may be the policy type for you. However, be aware that DP-1 policies usually provide actual cash value instead of replacement value.

2. DP-2 – As an average, middle of the road policy, DP-2 is a popular option. After all, it offers more protection than DP-1 and typically comes with replacement cost coverage. This isn’t the best landlord insurance, but it’s a decent policy at a more affordable price.

3. DP-3 – If you want the very best landlord insurance policy possible, you’ll need to choose DP-3. This comprehensive coverage includes everything except for specific rider exclusions. It’s generally written to provide replacement value rather than the actual cash value.

How Much Does Landlord Insurance Cost?

The average cost of landlord insurance will vary based on your exact location and how much coverage you desire. Adding on any riders will also increase the price of your policy. For a standard plan, you can expect to pay approximately 25 percent more than you do for homeowners insurance. For instance, if your homeowner’s policy is $800 per year, your landlord insurance rates should be around $1,000.

Landlord Home Insurance Riders

Don’t forget to include any optional riders you many need when you compare landlord insurance quotes. While these riders will increase the price of your policy, they’ll also give you some much-needed peace of mind. One thing that many people don’t know is that most policies exclude flood damage. Therefore, if you own a rental property in an area that’s prone to flooding, you should seriously consider adding on flood damage coverage.

Some of the most popular residential landlord insurance riders include:

Flood Insurance – Any property in a flood zone needs this rider.

Emergency Coverage – This helps cover expenses incurred by responding to a tenant’s after-hours emergency call.

Guaranteed Income Insurance – This policy helps you get paid for the monthly rent even if your tenant is unable to do so.

Burglary Protection – Do you store any items on the property? With a landlord contents insurance rider, you can protect your personal items against theft.

Building Codes Coverage – Is the property older or are you in an area that’s notorious for finding building code violations? This coverage may pay for some building code upgrades.

Does the Tenant Still Need Renter’s Insurance?

Renter’s insurance covers the tenant’s personal belongings within the property. Most of these policies also provide the tenant with coverage in case they’re personally responsible for starting a fire or causing some other type of catastrophic issue.

One of the most common misconceptions is that the landlord’s insurance will cover the previously listed items for their tenants. This is not the case, so you should encourage every tenant to get their own renter’s policy. Some landlords won’t rent to tenants unless they can provide proof that they have renter’s insurance. It’s up to you whether or not you want to do this.

What About Homeowners Insurance for Rental Property Coverage?

Let’s say you own a home that you’re renting out for some extra income, and that property is insured by a homeowner’s policy. That means you’re good to go, right? Unfortunately, this assumption is incorrect in most cases. The only situation where your homeowners insurance will cover you for landlord related issues is when you still physically reside in the home. So, if you have two properties and are renting one out while living in the other, you’ll need to get a landlord policy.

How to Use Landlord Insurance Comparison Sites

It’s natural to look for the best landlord insurance companies via comparison sites. However, there are a few things you need to be aware of before you start collecting quotes. Every policy has different provisions, after all, but this level of nuance may not be presented on comparison sites.

Make sure you know if you’re looking at landlord rental insurance that’s comprehensive or basic. Double check to verify whether or not each listed policy contains an appropriate amount of landlord liability insurance for the property in question. Look for details on any available riders. Once you think you’ve got a good handle on everything, contact the companies with the best quotes to verify all the details. Consider making a spreadsheet first to simplify the process of gathering information.

Do I Need to Buy Landlord Insurance for an Airbnb Property?

Landlord insurance providers may give you a variety of answers to this question. Some companies state that you must have coverage for any time period when you won’t be living in the home. Others view short-term vacation renters as being different from actual tenants, especially if you physically live in the home most of the time. Either way, it’s always better to ask than to end up in a bad situation later on.

Remember: there have been several publicized cases of Airbnb renters causing extensive damage. In one recent case, a group of eight renters stole $5,000 worth of stuff and also destroyed the owner’s furniture. Additionally, the renters left trash all over the house and filled it with the smell of smoke.

If your homeowners’ policy doesn’t cover short-term vacation rentals, you could get stuck covering everything in the event of an unscrupulous renter. Alternatively, you can take steps now to protect yourself by working with a landlord insurance broker. They can help you choose the right coverage to fit your specific needs.

How Much is Landlord Insurance from a Reputable Provider?

Now that you know what to look for in a policy and how to navigate some of the pros and cons of comparison sites, it’s time to connect directly with a reputable insurer. Our team will happily assist you to make sure every single one of your needs is met. Start with a free landlord insurance quote online or give us a call at (800) 760-4989. We’re here to answer any questions you may have, and we look forward to serving your needs for many years to come!

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