Rental Property Insurance: What You Need To Know

By  //  April 1, 2021

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Renting out your personal real estate property can be a great way to make a passive income, but it certainly doesn’t come without its own risks.

That is where rental property insurance, or landlord insurance, comes into play. It helps to protect you and your home if the renter should damage the property or hurt themselves on it.

Because of how helpful rental property insurance is, all landlords should invest in it. Read on to learn everything you need to know about rental property insurance basics, including what it covers, policy options, and how it is different from renter’s insurance.

Insurance For Landlords

Rental property insurance covers any risks that are assumed whenever you rent out your property to other people. You absolutely cannot neglect landlord insurance if you are renting out your property, especially for long periods at a time. Let’s take a closer look at landlord insurance and what it offers.

What’s Covered?

Renting out your property comes with a variety of risks that are unique and potentially costly. Anything from property damage, loss of rental income, and liability costs can be protected by landlord insurance. To put it simply, it covers financial risks that may happen whenever people live on your property.

Four main categories are covered through landlord insurance, including dwelling coverage, protection of your personal property, liability coverage, and loss of rent coverage. You can also have additional insurance endorsements, including vandalism coverage and law coverage.

Policy Options

Just as with other types of insurance policies, there are three types of rental property insurance policies to select. This includes DP-1, DP-2, and DP-3. Here is more information about all three policy types:

■ DP-1: DP-1 offers the most basic and cheapest form of coverage. It primarily only covers named perils, requiring you to name the disaster for reimbursement. Depreciation will be taken away from the covered items.

■ DP-2: DP-2 also requires you to name the peril for reimbursement, but what counts as a peril is much broader in this category than DP-1. It often does not account for depreciation.

■ DP-3: DP-3 offers a broad range of coverage, making it the most expensive. It should protect all perils, except for any that are explicitly excluded within the policy.

The exact cost of your rental property insurance will depend on the policy and insurance company you select. Generally speaking, landlord insurance costs 25% more than homeowner’s insurance. The average cost is $1350. You can get a landlord insurance quote to find out approximately how much a policy will cost you.

Do I Need Landlord Insurance?

Any type of insurance will cost quite a bit of money, but they are expenses that protect you in the long run. You may be wondering if you need rental property insurance, especially if you already have homeowner’s insurance.

If you anticipate renting out your property long-term, landlord insurance is a must. Regular homeowner’s insurance will not cover renting that lasts for six months or longer. In contrast, short-term or infrequent renting may be covered by your homeowner’s insurance. It’s important to talk to your insurance agent to ensure that your homeowner’s insurance covers this sort of renting.

In other words, invest in landlord insurance if you are renting out your property for more than six months. For any rental under six months, make sure that your homeowner’s insurance covers any potential liabilities.

How Is It Different From Renter’s Insurance?

It’s important to differentiate renter’s insurance from rental property insurance. Simply put, renter’s insurance will be the policy that your tenants purchase to protect their liability, such as breaking a window or different properties.

Rental property insurance, on the other hand, covers the landlord, not the renter. It is imperative to select the right policy to ensure you are adequately covered based on your position within the landlord and tenant relationship.

Final Thoughts  

If you plan on renting out your property, invest in rental property insurance or landlord insurance. These insurance policies will ensure that your property and personal assets are protected while renting out your home.

If you are only renting out your home short-term, talk to your insurance agent to see if your homeowner’s insurance offers enough coverage. It’s better to be safe than sorry, considering how costly landlord liability can be, though.