Insuring Your Rental Property

If you're renting out your home, you'll need to consider a different type of insurance policy to cover yourself against damage, loss of income, and liability. The type of insurance you need will depend on the rental scenario. For example, if you're renting out your entire property on a long-term basis, you'll likely need landlord insurance. This type of policy covers the building itself, your belongings inside the property, and liability in case someone is injured on the property. Landlord insurance also typically includes loss of rental income coverage if the property is damaged and you're unable to rent it out. On the other hand, if you're only renting out a room in your home or doing short-term rentals, your existing homeowners insurance policy may be sufficient, but you should check with your insurance company.

Landlord insurance for long-term rentals

If you're renting out your home or investment property for the long term, you'll need a type of insurance policy designed specifically for landlords. This is known as rental property insurance (RPI) or landlord insurance. This policy covers your rental home or apartment, your liability if something happens on the premises, and a few other things you may need coverage for.

• Dwelling coverage: This covers damage to the structure of the building after an unexpected event, such as a storm or fire. The coverage limit is usually equal to the estimated value of the home.
• Other structures coverage: This covers repairs or replacements to structures that aren't considered part of the main dwelling, such as a fence, detached garage, or gazebo, and is usually around 10% of the dwelling coverage limit.
• Liability coverage: This protects you if someone visiting your tenant gets injured on the property and you are held liable for medical costs and legal fees.
• Landlord's property coverage: This covers your belongings on the property, such as furniture, that may be damaged by the tenant or a covered peril like severe weather.
• Loss of rent coverage: This covers lost rent if the property is uninhabitable after a covered peril, similar to loss of use coverage in homeowners insurance.

Optional Add-Ons

You can also choose from various optional coverage additions or endorsements to create a more comprehensive policy. These options may vary depending on the insurance provider, as some offer more add-ons than others. Common examples include:

• Vandalism coverage: This endorsement pays for intentional damage to the home by a tenant or visitor.
• Building code or ordinance coverage: This helps cover the costs of permits or building code requirements associated with repairs or replacements after a covered loss.
• Umbrella insurance: This extends your liability coverage to incidents that occur on and off the rental property premises, such as injuries, property damage, or lawsuits.
• Flood insurance: Even if your rental property is not in a FEMA-designated flood zone, flood insurance can provide added financial protection.

Cost of Landlord Insurance

According to the Insurance Information Institute, landlord insurance for a rental property typically costs about 25% more than a regular homeowners insurance policy for the same property. The average cost of homeowners insurance is $2,511 annually, making the estimated cost of rental property insurance around $3,140 per year.

Homeowner's insurance for short-term rentals

If you are renting out your home on a short-term basis, you will likely need to take out short-term rental insurance or home-sharing insurance. This is because most standard homeowners insurance policies do not cover business use of your home, and renting out your home is considered a business activity.

Short-term rental insurance can be purchased as an endorsement or rider to your existing homeowners insurance policy, or you may need to take out a separate policy. This type of insurance will cover your property and your potential liabilities while renters are occupying your home.

• Guest liability insurance: This covers you financially if a guest gets injured during their stay or if you are sued after a guest accidentally damages someone else’s property.
• Property insurance: This generally provides coverage if a guest damages part of your home or your personal items during their stay.
• Theft and burglary: The property coverage portion of short-term rental insurance usually covers theft and break-ins.

However, short-term rental insurance does not cover everything. For example, it typically does not include:

• Intentional damage: If a renter damages your property on purpose, it generally won’t be covered.
• Limited theft coverage: While most policies cover theft, certain items may be excluded. For example, it is unlikely that your policy would cover the full cost of a stolen jewelry collection or cash.
• Loss of income: Short-term rental insurance may not cover the income you lose if you can’t rent out your home due to damage.
• Your guests’ property: If your guests’ belongings are lost, damaged, or stolen, a standard short-term rental policy usually won’t pay to replace them.
• Wear and tear: Standard insurance policies may not cover regular wear and tear that occurs over time.

When taking out short-term rental insurance, you can either buy a separate policy from companies that specialize in this type of insurance, get insurance through a home-sharing platform like Airbnb or Vrbo, or purchase it as an endorsement to your existing home insurance policy.

Some companies that offer short-term rental insurance include:

• Allstate: Allstate’s HostAdvantage covers theft and damage of personal items up to $10,000 per rental host period.
• American Family: Offers temporary rental coverage for up to 62 days per year, covering property damage, theft, and burglary.
• American Modern: Offers short-term rental policies for rentals of less than three months, with replacement cost coverage for the building and other structures.
• CBIZ: Offers standalone short-term rental insurance for properties rented out for less than six months a year and have multiple renters. It includes $2 million in liability coverage and $1 million per incident.
• Erie: Offers Home Sharing Coverage as an add-on to an Erie homeowners insurance policy, covering property damage, liability claims, and theft.
• Proper: Sells standalone short-term rental insurance policies with $1 million or $2 million in liability insurance, building and property coverage, and income protection.
• USAA: Offers home-sharing coverage for those who rent their property through sites like Airbnb and Vrbo for less than 30 days. This is only available to military members, veterans, and their families.

Liability insurance for injuries

When renting out a property, landlords must have a separate insurance policy for the rental property; a homeowner's insurance policy is insufficient. A well-designed property insurance policy can protect landlords from financial losses caused by fire, storms, burglary, and vandalism.

Comprehensive general liability (CGL) insurance is a type of policy that covers injuries or losses suffered by others due to defective conditions on the property. It also covers the legal costs of defending personal injury lawsuits. Landlords should ensure their CGL policy covers physical injury, libel, slander, discrimination, unlawful and retaliatory eviction, and invasion of privacy suffered by tenants and guests.

• Slip and fall accidents: If a tenant or visitor slips and falls due to a dangerous condition on the property, such as a broken step or a wet floor, the landlord may be held liable for any resulting injuries.
• Negligent maintenance: If a landlord fails to maintain the property safely, such as neglecting to fix a broken front door step, and a tenant or visitor is injured as a result, the landlord may be held responsible.
• Common area hazards: Landlords are responsible for maintaining common areas, such as lobbies and stairwells, and keeping them clean and free of debris. If someone is injured due to a hazard in a common area, the landlord may be liable.
• Visitor injuries: Landlords are liable for injuries caused by their negligence on the rental property. For example, if a landlord fails to clean up a spill in the lobby, and a tenant slips and falls, breaking their hip, the landlord's insurance should cover the tenant's medical expenses and damages.

It is important to note that landlords may be held liable for injuries only if their negligence caused the accident. To prove negligence, the following must be established:

• The landlord had a duty to maintain the portion of the premises that caused the accident.
• The landlord failed to take reasonable steps to prevent the accident.
• Fixing the problem or providing adequate warnings was not unreasonably expensive or difficult.
• The accident and resulting injury were foreseeable consequences of not fixing the problem.
• The landlord's negligence directly caused the accident and the tenant's injury.
• The tenant suffered a genuine injury.

Personal property insurance for items on-site

When renting out a house, it's important to understand the difference between landlord insurance and tenant insurance. Landlord insurance, also known as rental property insurance, covers the building itself and any personal property the landlord leaves on-site for maintenance or tenant use. This includes appliances, lawnmowers, and snow blowers. It also covers the landlord's financial interest in the property, including loss of rental income in the event that the property is damaged and needs to be repaired or rebuilt.

Tenant insurance, on the other hand, covers the tenant's personal belongings inside the rental unit. This includes furniture, clothing, electronics, and kitchenware. Tenant insurance is not usually covered by the landlord's insurance policy, so it is recommended that tenants purchase their own insurance policy to protect their belongings.

Landlord insurance typically includes personal property coverage for items left on-site by the landlord. This means that if you, as the landlord, leave a lawnmower at your rental property and it is damaged by a fire, your insurance policy will cover the cost of replacing it. However, it's important to note that landlord insurance policies usually only cover items kept on-site for maintenance purposes.

When shopping for landlord insurance, it's important to compare quotes from multiple companies and consider the level of coverage you need. You should also inform the insurance company that you are renting out the property, as this may affect the coverage options available to you. Some insurers may require you to add short-term rental coverage to your policy if you are renting out your property on a short-term basis.

In terms of the cost of insuring personal property left on-site, landlord insurance policies typically include some percentage of your dwelling coverage for personal property coverage. For example, if your policy's dwelling limit is $200,000, you might have $100,000 in personal property insurance coverage. You may also have the option to increase or decrease this limit depending on the value of the personal property you keep on-site.

Umbrella coverage for additional protection

If you're renting out a property, you'll need extra levels of protection that aren't offered as part of a standard home insurance policy. Umbrella coverage can provide this extra protection. It's a type of personal liability insurance that covers claims in excess of the limits of your regular insurance policy. It covers not just the policyholder but also other members of their family or household.

Umbrella insurance covers injury to others or damage to their possessions. It doesn't protect the policyholder's property or liability due to injury or damage caused on purpose. It also covers certain liability claims that other policies may not, such as libel, slander, and false imprisonment.

Umbrella policies provide additional coverage after the coverage limits of underlying policies, such as landlord liability insurance, have been reached. They can provide coverage for multiple rental properties in different cities and states.

The cost of an umbrella policy for rental property will vary based on factors such as the needs of individual investors, the type of property and where it is located, the property value, and the amount of deductible. According to the Insurance Information Institute, a $1 million umbrella policy will cost around $150 to $300 per year, with each additional $1 million in coverage costing between $50 and $75 more per year.

Umbrella coverage can help protect you from potential financial ruin. For example, if a tenant is injured at the rental property and the landlord is found liable, the landlord's liability insurance policy will pay the initial claim. If the payout is more than the policy covers, the umbrella insurance policy will cover the remainder (up to the policy limit).

Before obtaining an umbrella policy, a landlord must have one or more underlying liability policies, such as a landlord insurance policy.

Frequently asked questions