There are a lot of ways a landlord can minimize the financial risk of owning a rental property, including selecting the best markets for rentals, thoroughly screening tenants, and keeping the home in great condition. 

However, there are times when something unexpected may occur, such as a natural disaster or a slip-and-fall claim from a tenant. A landlord insurance policy can provide additional protection for situations like these that are beyond a landlord’s control.

Key takeaways

• Landlord insurance is a policy purchased specifically for rental properties.
• A landlord insurance policy generally provides coverage for property damage, liability claims, and loss of rental income.
• Optional endorsements for landlord insurance may include burglary, vandalism, and non-occupied dwelling coverage.
• Equipment and appliance breakdowns, shared property, and tenant belongings are items not generally covered by landlord insurance.
• A landlord may require a tenant to purchase renters insurance to help protect a tenant’s valuables, and from injury claims made by a guest, if state landlord-tenant laws allow.

What is landlord insurance?

Landlord insurance provides additional layers of coverage to help protect an investor from potential financial loss. While a standard homeowners policy provides limited protection for a rental property, a landlord insurance policy provides extra coverage if a property is damaged, and liability protection if a landlord is sued by an injured tenant, guest, or repairperson. 

All types of rental property are eligible for landlord insurance:

• Home rented out to a tenant on a long term lease.
• Rental property with a tenant on a short-term lease.
• Seasonal vacation rental.

What does landlord insurance cover?

While every insurance policy is different, landlord insurance generally offers protection for 3 types of losses.

Property damage

Landlord insurance usually provides extra coverage if a rental property or outbuildings like a storage shed or free standing garage is broken into, or damaged by a covered peril such as fire or major hail or wind storm. Most policies also provide protection if a landlord’s personal property is damaged, such as kitchen appliances or a washer and dryer provided for a tenant, and landscaping equipment or tools kept on site.

Liability coverage

Personal injury law is a $38 billion business in the U.S., which means that even the most conscientious landlord may end up getting sued by a tenant, guest, or vendor who is injured on the rental property. Liability coverage in a landlord insurance policy protects a landlord legally if someone is injured, and can help to cover the costs of medical care, legal and court fees, and a negotiated settlement after any deductible is paid. 

Loss of income

A landlord insurance policy may also cover a landlord against loss of rent if a home becomes uninhabitable and a tenant has to move out. An insurance company adjuster may ask for proof of the amount of rental income being received. 

That’s one reason why many investors sign up for free rental property financial management software from Stessa. Income and expenses are automatically updated and tracked, and landlord bank accounts linked to Stessa can be easily reconciled monthly and at year end.

Optional riders for landlord insurance

A property owner may also wish to customize a landlord policy by adding riders or endorsements for additional coverage. For example, an insurance company may provide coverage that pays for tenant moving expenses if a landlord has to move a tenant out to make major repairs. 

In some cases, an insurance company may not pay for specific vandalism related claims unless a landlord insurance policy has a vandalism rider. That may be especially important for a landlord who owns a rental property in a high crime area, or who has a property vacant for an extended period of time while it is being renovated.

Optional riders that may be added to a landlord insurance policy include:

• Burglary: Covers the replacement cost of personal items owned by a landlord and used in a rental property, including kitchen appliances like a refrigerator or oven, washer and dryer, and landscaping equipment like a lawn mower or snow blower.
• Vandalism: An optional rider for vandalism in a landlord insurance policy helps to protect a landlord if a property is broken into and deliberately damaged by things such as graffiti, walls being sledgehammered, or cement poured down plumbing lines.
• Building codes: Sometimes when a property is significantly damaged and repairs are made, a city may require a landlord to bring the home “up to code” to meet the current building standards. Oftentimes, building codes change from the time a home was first built. A landlord may be required to upgrade mechanical systems like electrical and plumbing if major renovation work is being performed.
• Non-occupied dwelling: This type of optional coverage may be purchased if a rental property is vacant for an extended period of time, generally longer than 30 days. For example, a landlord who has a rental property under construction or is performing major renovations may wish to purchase a non-occupied dwelling endorsement until the work is completed and the property is rented to a tenant.
• HVAC reimbursement: An optional rider for heating or air conditioning loss reimbursement compensates a landlord for payments made to a tenant if the HVAC (heating, cooling, ventilation, air conditioning) system is not working due to a mechanical breakdown. For example, some Sunbelt cities have scorching summer temperatures and it may take a licensed air conditioning contractor several days to visit a property due to a backlog of emergency repairs.

Are there claims landlord insurance does not cover?

While a landlord insurance policy provides a variety of different protections, there are some items that landlord insurance may not cover.

Equipment and appliance malfunctions

The cost to repair breakdowns of kitchen appliances, a water heater, a furnace, or an air conditioning system are usually not covered by landlord insurance. A landlord may wish to consider purchasing a rental property home warranty to pay for repairing or replacing items like these.

Shared property

Because a landlord insurance policy is designed for non-owner occupied property, a homeowner who househacks by renting out extra space may be ineligible for landlord insurance. However, a homeowner may wish to speak with the company issuing their homeowners insurance policy to learn if additional coverage is available if a spare room is being rented to a tenant.

Tenant belongings

In most cases, a landlord insurance policy will not cover a tenant’s personal possessions that are stolen during a burglary or damaged by a covered natural disaster such as a hail storm or flood. Depending on state landlord-tenant laws, a landlord may be able to require a tenant to obtain renters insurance as a condition of signing the lease. A renters insurance policy helps to pay the cost of repairing or replacing items owned by a tenant that are damaged, and may also pay for lodging expenses if a tenant has to temporarily move out when a home is being repaired.

Other types of rental property insurance

In addition to landlord insurance, other insurance policies and methods for protecting a rental property include:

• Earthquake insurance: According to FEMA, the top 3 states most subject to earthquakes are California, Missouri, and Washington state. A landlord may wish to investigate traditional earthquake insurance and parametric insurance to help protect a rental property located in an earthquake zone.
• Flood insurance: Oftentimes a homeowners or landlord insurance policy will not cover damage caused by flooding. Even if a property is not located in an official flood zone, flood damage can still occur due to heavy rains or excessive snow melt. In addition to obtaining flood insurance, a landlord may wish to ensure a rental property is protected from flooding by installing a sump pump in a basement, grading the lawn away from a home, and making sure rain gutter downspouts are pointed away from the foundation.
• Personal umbrella policy: A landlord who owns multiple rental properties may wish to purchase a personal umbrella policy to provide extra coverage. For example, if the cost of repairing a home that is significantly damaged exceeds the coverage limits of one policy, a personal umbrella policy could kick in to provide additional coverage.
• Create an LLC: Forming a limited liability company (LLC) for a rental property may help limit a landlord’s personal exposure. For instance, if a tenant or other person sues for damages caused by an accident that took place on the property, a landlord’s exposure will generally be limited to the assets held by the LLC – such as a single rental property – rather than a landlord’s entire business and personal assets.

Final thoughts

A landlord insurance policy can help protect a landlord from financial loss caused by property damage or a lawsuit. In addition to purchasing landlord insurance, other steps a landlord can take to help minimize risk and reduce liability include performing regular inspections to make sure a home is in good repair, making sure the language in a lease protects a landlord, and requiring a tenant to purchase a renters insurance policy if the landlord-tenant laws allow.