Regardless of whether you rent your home occasionally, full-time, or not at all, it’s important that your home and property are protected by insurance. While a traditional homeowners insurance policy will cover you financially if someone is injured on your property, your home burns down, or your home is broken into, it may not cover your home or property if you rent your house out.
Landlord property insurance is designed to protect landlords who want additional protection or don’t qualify for homeowners insurance. Although landlord insurance and homeowners insurance cover similar events, there are several areas where these two types of policies differ.
Landlord Property Insurance vs Homeowners Insurance
To purchase homeowners insurance, you must be living in your home. If you’re living in your home and renting a separate room or section of your home to another person, you may still qualify for and purchase homeowners insurance, depending on the terms of the policy and insurance company.
However, if you aren’t living in your home and are renting it out, landlord property insurance will be your only option. Landlord insurance is also available if you are living in your home and renting a separate section out.
As a baseline, landlord insurance and homeowners insurance will cover your home for damages caused by fires, lightning, wind, hail, water, and other covered environmental disasters. Landlord and homeowners insurance will also cover large appliances damaged during natural disasters. Homeowners and landlord insurance also typically cover separate structures such as fences, detached garages, and tool sheds, although some landlord insurance policies require a separate structure add-on.
Homeowners insurance and landlord insurance also differ significantly on personal property coverage. Homeowners insurance covers all personal belongings, including computers, furniture, clothes, and appliances. Landlord insurance, alternatively, only covers items used by the tenants, ranging from maintenance equipment (lawnmowers), furniture, and appliances.
Although both landlord and homeowners insurance policies provide coverage in injury liability cases, the two policies cover slightly different areas. Homeowners insurance protects against lawsuits for bodily injury caused by you, your family members, and your pets, keeping you financially protected in cases where a member of your household causes financial or physical harm. However, it’s important to note that insurance only covers damages and costs of others—it won’t cover the medical bills for your household or damages to your own property.
Homeowners insurance also covers your living expenses if an insured natural disaster renders your home unlivable. It covers costs above your living expenses for a place to stay, meals, and other costs you may incur. If you’re renting your house out, however, this won’t reimburse you for lost rent. Landlord insurance policies that include fair rental value coverage will reimburse you for the rent lost from a covered event due to repairs or replacements.
Reasons You Might Need Landlord Property Insurance
While renting out your property for short and long durations can be extremely lucrative and profitable, it can quickly transform into a headache-inducing disaster. Renting out your home will naturally increase your risk as a landlord, mostly through potential injury liability.
If you’re looking at buying a new home in the US as an investor to rent out, landlord property insurance is the essential replacement for homeowners insurance, covering you financially in many of the same ways that homeowners insurance covers. While landlord property insurance often comes at a 15-25% price premium over homeowners insurance, it covers the additional risk of having a tenant living in the house instead of the homeowner.
Length of Rental
If you live in your home and occasionally rent your house out for short durations, you can often still keep your homeowner’s insurance policy, allowing you to keep your benefits. The limitations for rentals will depend on your insurance policy and insurer, so ensure that you confirm that your rentals fall within the allowed guidelines before proceeding with any rental.
Longer rentals often aren’t permitted under homeowners insurance guidelines. As you’re raising the insurance company’s risk by renting your home out for longer periods of time, companies will often require you to purchase landlord insurance if you still want to ensure your home against natural events and liability cases. As insurance against natural events and liability cases is highly desired among homeowners, most landlords opt for landlord insurance when they don’t qualify for homeowners insurance.
Liability insurance is one of the most valuable and important parts of landlord protection as oftentimes, it’s challenging to foresee and prevent tenant injury cases. If the tenant steps onto the house’s deck and gets injured falling through a rotten plank, the landlord may be forced to pay due to negligent maintenance. If the landlord fails to provide adequate security and your tenant faces injury, the landlord may be held liable.
Liability claims brought by tenants can be costly when brought to court and can also result in large payouts—liability insurance allows the landlord to pay a much smaller amount to guarantee financial protection against any tenant injury suits. Liability insurance essentially serves as a safety net against disaster, reducing financial risk for landlords and providing peace of mind.
Fair Rental Value Coverage
When purchasing a home as an investment property, it’s widespread for landlords and investors to use rent dues to fund mortgage payments. However, this opens up the landlord to risk if they can’t get the house filled.
Landlord insurance policies with fair rental value coverage protect landlords against this risk by guaranteeing the rent payments in case of disruption by a covered event. With fair rental value coverage, landlords can better guarantee their cash flow from their properties, dramatically reducing the financial consequences of a covered natural disaster.
Landlord property insurance and homeowners insurance can provide valuable financial safety and stability for homeowners and landlords. There are many types of landlord property and homeowners insurance policies—different policies may insure for different events and have different policy limits. As no financial situation is alike, you must find the right landlord insurance or homeowner insurance policy that suits your circumstance and needs.