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What is Landlord Insurance, and How Does it Work?

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What is Landlord Insurance, and How Does it Work?
4 min. read
Landlord Insurance contract

Image: Vitalii Vodolazskyi / Shutterstock.com

Renting out property can be a fantastic way to earn a little (almost) passive income. But before you jump in, landlord insurance is well worth taking a look at. Below, we’ll go over the basics and discuss why it’s worth getting.

What is Landlord Insurance?

Landlord insurance is a policy that is specifically designed to protect owners of rental properties. There are different levels of coverage, but for the most part, the policy is aimed at non-owner-occupied properties inhabited by tenants. It covers many of the same things as the typical homeowners insurance and includes several additional points specific to rentals.

What Does Landlord Insurance Cover?

Most landlord policies are built on three major protections: damage to the property, loss of income and liability protection. Let’s take a closer look at each.

Property Protection

Property protection typically covers the following:

  • Dwelling: landlord insurance protects against physical damage to the structure of your property. Things like storm, hail, wind and fire damage are generally covered as standard, but it’s worth double-checking.
  • Appliances and furnishings in your property can also be covered in case of damage or loss. They’ll typically be covered for the same issues as above, fire, lightning, etc. You can normally choose between replacement cost or actual cash value when you set up your policy. Replacement cost will result in a higher premium, but you will be covered for the entire cost if you need to replace the items.
  • Additional structures: fences, garages and even garden sheds can also be covered by your landlord insurance.
  • Personal property: this generally refers to items used to service the rental property, such as a lawnmower, rather than personal belongings. For example, a bicycle or personal computer that has been left in the unit will not be covered.

Loss of Income

This refers to the income you get through renting your property. You will be covered in the event that your property becomes uninhabitable, for example, in case of infestations, structural damage or severe mold, etc.

If tenants cannot live in your property, you will be paid the rental cost for the duration that the unit is uninhabitable. There will often be a limit to how much the insurer will pay, which can normally be agreed on when setting up your policy.

Liability Protection

If accidents happen on your property to your tenants, their guests or any other visitor, this protection will cover any required medical or legal fees. Things such as injuries caused by icy footpaths, poorly maintained stairways, disturbed hornets’ nests or structural collapse will generally be covered if it’s found to be your responsibility.

Optional Extras

Several other protections are worth considering when taking out landlord insurance:

  • Flood insurance: this is rarely offered as standard but can be extremely useful if your property is in a flood zone.
  • Building codes and additional construction costs: in the course of repairing your property after damage, you may be legally required to make upgrades in order to meet building codes. This includes things like wiring and HVAC systems. With this coverage, the additional cost will be reimbursed.
  • Theft and vandalism: not always included in the standard policy, this covers you in case of damage or loss caused by burglary or vandalism.
  • Guaranteed income: this useful option covers you in case your tenants fail to make their rent payments.

What Isn’t Included?

There are several things that aren’t often covered by landlord insurance at all:

  • Tenant’s belongings: are not covered, and they are advised to take out renters insurance to protect their possessions.
  • Shared property: if you’re living on site and renting out a part of the property, you won’t be eligible for landlord insurance. This policy is aimed at non-owner-occupied properties.
  • Maintenance: in case of ‘natural’ appliance breakdowns, you will normally have to pay the repair or replacement cost yourself.

How Much Does Landlord Insurance Cost?

Rental properties are typically seen as a bigger risk than owner-occupied homes, and therefore the average cost of landlord insurance is 15-25% higher. There are several variables, however. For example, unfurnished units will generally be cheaper to insure than furnished ones. In addition, policies on properties used for short-term rentals will cost more than those for long-term rentals.

Why Do You Need Landlord Insurance?

Homeowners insurance won’t cover rental properties, so it’s essential that you take out landlord insurance if you’re renting out your non-owner-occupied property. Most lenders will require you to take out landlord insurance if you buy the property with a mortgage. But, even if not, it’s wise to take out a policy, as it can potentially save you thousands of dollars.

 

Disclaimer:
This article is intended for informational purposes only and should not be deemed as legal, financial or investment advice or solicitation of any kind. Before purchasing real estate or insurance, always consult with a licensed attorney, financial advisor, insurance agent and real estate broker.

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