Landlord Insurance 101: What Landlords Need to Know

If you’re considering renting out your first property, you may have all kinds of questions about landlord insurance and if you really need it. 

The short answer is yes. While it may not necessarily be required, if you have a rental property, you need insurance to protect your investment and yourself. 

You’ve put a lot of time and effort into your rental property investment, so it’s important to ensure it’s insured!

Insurance is one of those things in life you grumble about it until you need it. Anyone who’s ever had damages or liability lawsuits that were covered by insurance is grateful they had the foresight to get insurance that protected their assets.

And you will be too. 

Managing rental properties is all about protecting your investment while streamlining costs. Landlord insurance is one of those must-haves that is worth its cost in the long-run. 

As a landlord, what insurance do I need?

You need landlord insurance, not renters insurance or homeowners insurance—unless you plan on living in the dwelling yourself. In which case, your situation might call for two types of insurance, depending on your state laws.

What is landlord insurance?

About 75% of daytime court cases about landlord liability lawsuits could have been avoided with a simple landlord insurance policy. 

While there are different plans depending on the policy provider you go with, typically, landlord insurance covers damages to the physical structure of/on the property and offers liability protection.

Landlord insurance—what does it cover? 

Landlord insurance covers financial losses that occur as a result of property damage or liability claims. You can also find rent loss protection, flood, and other natural disaster plans.

Property damage covers any damage to the rental property and any related physical structures, such as sheds or garages that are a part of the rental property. “Damages” can range from weather, fire, theft, and more—depending on your policy.  

Additionally, insurance also protects landlords from liability claims and lawsuits. For example, if a tenant or a guest were to hurt themselves falling down your rental’s stairs, you could potentially face legal action.

However, the liability protection policy helps cover legal, medical, and other costs associated with the accident if you are found responsible. As the landlord, you need to be financially protected in the event of an accident.

What is a landlord umbrella policy for rental property?

A landlord umbrella insurance policy is a separate policy from your landlord insurance that protects your personal and financial assets. 

According to The Balance for Small Business, an umbrella policy is taken out if you have a net worth that is more than the liability coverage on your rental property to protect your personal assets. 

If you have a net worth that is more than the liability coverage on your property, you will want to take out an additional umbrella policy that sits behind the original policy to protect you for that additional amount. If your net worth is $2 million, and your liability policy is $1 million, you will want an additional $1 million umbrella policy so that someone suing you cannot come after your personal assets.

The Balance Small Business.

Essentially, you want all your assets (personal and business) protected from potential lawsuits.

How much does landlord insurance cost per month?

Landlord insurance price per month will vary depending on state laws, location (city, county), type of structure (condo, mobile home, duplex, single-family, multifamily, etc), and many more factors.

Typically, estimates account for the average cost of homeowners insurance with an additional 15-20% more, as landlord insurance encompasses a wider ranger of property and liability issues that come with the renting process.

While there is no known average for the cost of landlord insurance per month, you can get an idea of a monthly cost estimate by calculating the following:

ValuePenguin reports the U.S. average cost of homeowners insurance across for 2020 as $1,445 per year. Add your extra 20% to that insurance to get an estimated cost of landlord insurance per year. 

  • $1445 + ($1445 * 20%) = $1,734 per year.

Divide by 12 to get the monthly estimate of landlord insurance.

  • $1734/12 = $144.50 per month.

You can get a more accurate estimated cost based on your state’s average homeowners’ insurance costs.

How much rental property insurance do I need?

This depends on the number of properties you have. You will need landlord insurance for all your rental properties (versus insuring some and not others). 

Speaking with an agent can give you a better estimate of how much rental property insurance you’ll need and a more accurate landlord insurance cost estimate. 

Does landlord insurance cover a tenant’s personal property?

NO. This is why many require renters insurance in their leases, which you can read more about in our article about why renters insurance is important. 

Remember: Renters insurance covers renter property, landlord insurance covers rental property.

Importantly, as with our recommendations on state-specific leases and laws, we recommend connecting with a professional to ensure you understand all the options available to you. A landlord insurance policy agent can take into consideration your individual rental property situation to advise you of the best policy for your rental business.

As with anything in the rental property world, every state/county/city will have its own policies and requirements, so it’s important to better understand which options are available to you and which provide you the coverage you need to protect your rental property investment and your financial assets.