What Landlords Need to Know About Rental Property Insurance

A photo to accompany a story about rental property insurance for landlords Getty Images
NextAdvisor is not a licensed insurance company, agency or broker and we do not sell, solicit or negotiate insurance. Our content provides summaries of insurance providers and/or products that may not include all terms, benefits or limitations of such provider or product. Please consult a licensed insurer or producer regarding any insurance product. Our site may include links that take you to another website and result in us earning a fee. However, our compensation is never tied to whether you purchase an insurance product. For more information, please see our Advertising Disclosure and How We Make Money.

Being a landlord comes with a long list of financial decisions. 

You have a lot of priorities, but one of the most important things you can do to protect yourself financially is to choose a good landlord rental property insurance policy. 

Incidents that cause financial losses to property owners are not uncommon. About one in 20 insured homes has a claim each year. And between 2014 and 2018, the average property damage claim was a whopping $13,687, according to the Insurance Information Institute. For owners of large multi-family buildings, financial losses can be even greater. Plus, it’s not just property damage you have to worry about. “Outside of protecting a large investment, there’s a question of personal liability that’s pretty important,” said Eachan Fletcher, founder of NestEgg, a rental property management app for landlords. 

Is rental property insurance necessary for all landlords, and how much will it set you back? Read on for our full guide on what’s covered in this insurance policy, when it’s necessary, and how much it will cost. 

What Is Landlord Property Insurance?

Landlord property insurance is designed to protect owners of homes or buildings who rent out at least one unit from financial losses. If a tenant damages a rental property or sues the landlord for any reason, landlord property insurance can help cover the expenses. 

Pro Tip

If you’re renting out a property that isn’t your primary residence, purchasing a landlord rental property insurance policy is essential to protecting your finances. If you have a mortgage, your lender will likely require this type of insurance.

Homeowners insurance policies don’t cover properties that are being rented or even damage that occurs in a rented room. “Let’s say you’re my Airbnb owner, I rent from you, and I destroy your washing machine. Your homeowners insurance policy isn’t going to cover it,” said Quentin Coolen, CEO and co-founder of Waffle Insurance, a national insurance group. To ensure you’re covered when you really need it, you’ll need to purchase a landlord rental property insurance policy. 

What Does Landlord Property Insurance Cover?

Landlord property insurance can provide the following coverages:

  • Property damage: This covers repairs to the structure of a dwelling due to incidents such as vandalism, fire, and certain natural disasters. It may also cover items you leave on-site to help maintain the property, such as a lawnmower or other equipment.
  • Liability protection: If medical or legal expenses arise from a tenant becoming injured or ill due to poor property maintenance, such as slipping on an icy walkway, this coverage helps to handle the landlord’s costs. 
  • Rental income protection: “There’s a whole set of insurances that cover your rental income as well,” Fletcher said, which is especially important to know in the midst of the economic downturn caused by the coronavirus crisis. Rental income protection can help cover your operating costs if a tenant is unable to pay rent. In addition, if an apartment unit becomes uninhabitable for certain reasons, you may be required to prorate your tenant’s rent. Rental income protection helps guarantee you still receive the rental income you’re relying on in the event that the tenant doesn’t pay rent due to default, breaking the lease, or living elsewhere while the unit is uninhabitable. 

One expense that landlord property insurance does not cover is a tenant’s personal belongings. For this reason, landlords often require renters to carry a renters insurance policy, which is typically very inexpensive. “You can put into your lease that you require the tenants to have renters insurance, and that’s actually a very good thing to do,” Fletcher suggested. Renters insurance provides personal property protection, liability coverage, and loss of use coverage should you need to pay for alternative accommodations. 

Is Landlord Insurance Necessary?

If you’re renting a home you don’t occupy, landlord insurance is essential coverage to have, and in some cases, it’s mandatory. “If you have a loan, it’s definitely required. Any lender is going to require you to have a degree of insurance,” said Fletcher. He added that commercial loans for multi-family units sometimes have elevated insurance requirements, and you can’t always choose your carrier. 

If you’re renting a room in your primary residence, your homeowners insurance may cover you temporarily if you notify your provider ahead of time, or the company may require you to purchase an endorsement that covers rentals. 

How Much Does Rental Property Insurance Cost?

According to the Insurance Information Institute, landlord rental property policies generally cost about 25% more than homeowners insurance policies for the same dwelling. In comparison to renters insurance, Coolen said landlord policies typically cost about seven to eight times more than a renters policy on the same unit, but the cost depends on many factors. 

Popular Providers

When choosing a landlord rental property insurance policy, you’ll want to consider more than just the cost. “What really matters in insurance is not so much the provider, [but] what the coverage is,” says Coolen. 

That said, the following home insurance providers offer great landlord insurance coverage and have a strong reputation for financial stability and customer satisfaction:

  • State Farm: State Farm has an A++ financial strength rating from AM Best and is ranked above the industry average in J.D. Power’s 2020 U.S. Home Insurance Study. State Farm offers all the basic coverages in addition to equipment breakdown coverage, tenant moving expenses, and reimbursement for heating or air conditioning loss. You can even save money by bundling your landlord policy with another business policy. 
  • Allstate: Allstate has an A+ financial strength rating from AM Best and is ranked sixth in J.D. Power’s 2020 U.S. Home Insurance Study. In addition to the basic coverages, you can add special endorsements like building code and burglary coverage. Allstate also offers great multi-policy discounts, so you can bundle your landlord insurance coverage with homeowners insurance for your primary residence or your auto policy. 
  • Erie Insurance: Erie has an A+ financial strength rating from AM Best and is ranked fourth in J.D. Power’s 2020 U.S. Home Insurance Study. In addition to liability, property damage, and rental income coverage, Erie offers several attractive endorsements, such as workers’ compensation coverage for employees, earthquake coverage, and more.