As a responsible homeowner, you probably already know your home insurance policy backwards and forwards. Choosing to rent out one of your properties to tenants can be risky, but can generate a lot of additional income for yourself. You may already require your tenants to have renters insurance before they sign their lease. But are you protecting yourself as a landlord? As a landlord, you have a few other risks that could potentially send you into a financial ruin.
Standard homeowners policies may not cover all rental activities and risks. However, if you’re only renting out a room or a small portion of your property, you may not need landlord insurance. Assess how much risk your rental could cause to you as a landlord, and decide from there if you’ll need to get more coverage. Keep reading to find out what other risks you should consider, and what kind of coverage options you have.
How Does Insurance Protect Landlords?
Landlord insurance is designed specifically for landlords and includes special protection measures. It’s not suitable for those with temporary or short-term rentals such as AirBnbs, but homeowners who do plan on renting out their property for an extended period will also benefit from landlord insurance. These policies go beyond protecting the home itself, they also cover:
- Loss of income
- Personal property coverage
- Liability coverage
- Peril protection
Let’s go over some the ways landlord insurance can protect you and your property.
Third-Party Liability
Unlike regular home insurance, landlord insurance policies have more third-party liability coverage. This means that if someone were to get hurt on your property, you’ll be protected from any liability suits. Accidents happen, and your tenants will have guests of their own that could get hurt on your property. Although your tenant’s renters insurance should help cover any issues with their own guests, there are other risks on your property that you should consider such as a pool.
Any structures in your home are considered risks if not handled properly. For instance, let’s say you have a loose stair on your deck that might take you a few weeks to fix. Although your tenants might understand to practice caution around the step, accidents happen all the time with children and guests. You could face a potential negligence lawsuit if someone gets hurt. Remember to always keep up with the maintenance on your properties, and consider extending your third-party liability.
Property Protection
Although your regular homeowners insurance should cover damages to the property itself, your other possessions may need protection as well. If your rental property is furnished with your own furniture and amenities, you might want to protect those items if they’re damaged or stolen. However, anything your tenants own will have to be covered under their own renters insurance. Landlord insurance will also help cover major appliances you own if you include them in the property. So if you discover your tenants broke your dishwasher upon vacating the premises, your landlord insurance will help cover the cost to fix or replace the unit.
Loss of Income
Although every good landlord knows to secure a damage deposit from their tenants in case something goes wrong, the deposit might not cover everything. If you use your rental property as a source of income, you’re going to want to protect any losses if your tenants have to unexpectedly move out. If an insured event or emergency such as a fire forces your tenants to move out, your income will be protected with landlord insurance.
What’s Not Covered
Landlord insurance may not cover several things. Anything not covered by your homeowners or landlords insurance policy will probably be covered by renters insurance. Before you get your tenants to sign a rental agreement, ask them to get their own renters insurance so they’re also protected. Landlords insurance will not cover:
- Maintenance and regular repairs or breakdowns
- Property you share with the tenant
- Temporary rentals
- Your tenants’ belongings
If you have a temporary rental property like an AirBnb, you’ll need a different kind of coverage. You can read more about temporary rental insurance through this article.
As a landlord, you have a responsibility to your tenants to create a livable and safe environment. Keep up with regular maintenance of your property and amenities. Have a monthly check-in with your tenants so you can keep record of any incidents or concerns they may have with the property. This way, you’ll have less unexpected incidents on your property.
Types of Dwelling Policies
Since you can choose whether or not you purchase landlord insurance, there’s no minimum requirement for coverage. Policies can change depending on which insurance provider you choose, so it’s best to speak with an insurance provider about what they specifically cover. The 3 polices types will generally cover what’s listed below.
DP-1 Policies
This is the most common and popular type of policy. DP-1s are peril policies and cover all perils listed in the policy at their actual cash value. This means you’re only reimbursed for the property’s estimated value, or depreciation value. These policies are very affordable, but they don’t cover everything you may need to protect your home. The perils this policy covers are:
- Fire and Lightning
- Internal and external explosion
- Wind and hailstorms
- Riot and civil commotion
- Smoke
- Aircraft
- Vehicles
- Volcanic explosions
- Vandalism and malicious mischief
DP-2 Policies
Landlords get a little more comprehensive coverage with this policy. A DP-2 has broader peril coverage and a higher replacement value. Your property’s depreciation (the estimated value) won’t be calculated in the event that your property must be replaced. These policies include supplemental rental income if the property needs to be repaired due from a covered hazard or peril. The policy will not cover a property that’s been vacant for more than 30 days. A DP-2 policy will cover all DP-1 policies in addition to the following perils:
- Burglary damage
- Broken glass
- Weight of ice and snow
- Accidental discharge or overflow of water and steam
- Falling objects
- Freezing pipes
- Electrical Damage
- Collapse
- Tearing, cracking, burning, bulging properties
DP-3 Policies
This the most comprehensive landlord insurance policy. This policy covers any of your non-owner occupied homes or vacant properties. DP-3s are an open peril or “all risks” policy, so your property is covered from any peril unless explicitly listed. This policy protects your home with full-value replacement costs. They also cover any lost rental income if your property does have a peril.
To find out more about what’s specifically covered under landlord insurance, talk to one of our Quote Purple partners to get even more information.
