What is Landlord Insurance?
Before diving into finding the best landlord insurance, it’s important to first understand what landlord insurance is and why it’s important to have a landlord policy. Essentially, landlord insurance can provide coverage specifically for rental properties to help protect against financial loss. Landlord insurance typically provides:
Property Protection
Helps cover the physical property of your rental investment.
Liability Protection
Helps cover medical and legal expenses resulting from accidents on your property.
Loss of rental income coverage
Provides temporary rental reimbursement should your property become inhabitable.
How Much Does Landlord Insurance Cost?
As a general rule, you can expect to pay about 15% to 25% more for landlord insurance than a standard homeowners insurance policy. Depending on the state, landlord insurance typically ranges from $800 to $3,000 per year. Some factors that can result in higher premium costs include:
Size
Larger homes often require more resources to repair or rebuild following a loss.
Value
A property with high market value will likely cost more to insure since it costs more to repair and replace.
Age and Materials of Home Construction
Older and poorly maintained properties are typically more complex to repair since necessary parts might be hard to find. Older homes might also require more repairs to be brought up to current code.
Tenancy
Short-term monthly leases might attract tenants that are less concerned about the property’s upkeep and more likely to cause damage than long-term tenants.
Crime Risk
A property located in an area known for frequent incidents of burglary, arson, and other crimes presents an increased risk of claims for insurers.
Environmental Risk
Properties located in areas that are prone to natural disasters like wildfires and hurricanes experience more frequent and significant damages.
Coverage Maximums
Landlord insurance policies usually have a set maximum amount of coverage per event or per year. While choosing a higher maximum may provide greater coverage, it will come at a higher price point.
Add-On Coverage
Insurance add-ons, such as guaranteed income, flood, and emergency coverage, can drive up the overall cost of your landlord insurance.
The Basic Types of Landlord Insurance
In the United States, most landlords can choose from three dwelling policy insurance options to insure their rental properties.
DPI
A DP1, policy is the most basic form of coverage available for rental properties in the United States. The most common reason landlords might choose DP1 insurance is because it’s comparatively the least expensive type of policy. Insurance carriers will sometimes provide coverage for vacant homes through a DP1 policy. A DP1 policy is a named perils insurance policy, meaning that any peril that is insured will be specifically listed within the policy. Common named perils include:
Fire
Lightning
Smoke
Explosion
Windstorm & hailstorm
Vehicle Impact
Aircraft Impact
Riots or civil commotion
Volcanic explosions
It’s important to note that this list is not exhaustive and you should check with your agent before assuming any perils are covered by a DP1 insurance policy.
DP2
DP2, often called broad form, is a middle-of–the-road landlord insurance policy. This type of coverage is similar to DP1 in that it is also a named peril policy, but DP2 provides coverage for several risks in addition to those outlined in a DP1 policy.
For example, DP2 often covers burglary, malicious mischief, freezing pipes, and falling objects in addition to the covered perils offered to DP1 policyholders.
DP3
DP3, often called special form, is the most comprehensive, open peril policy, and is generally regarded as the best protection from loss for landlords. Rather than listing covered perils, DP3 insurance specifically names exclusions. Common exclusions include losses due to earthquakes, flood damage, neglect, war, and intentional action.
More Types of Coverage:
Once you’ve decided on the type of dwelling policy and peril coverage you need, the next thing to look at is any applicable add-ons to your policy. These can help cover the following aspects of your property:
Additional structure
Building under construction
Damage to property of others
Water backup/sump pump overflow
Ordinance or law
Frequently Asked Questions
The following are frequently asked questions regarding landlord insurance:
Is Landlord Insurance More Expensive Than Homeowners Insurance?
In general, landlord insurance costs more than homeowners insurance due to the increased risks associated with tenant-occupied properties. While homeowners are only responsible for their home and its content, landlords are responsible for their property and any damage sustained while renting to guests or tenants.
Is Landlord Insurance Required By Law?
Landlord insurance isn’t required by law. However, most lenders do require landlord insurance before closing. As such, property owners should strongly consider purchasing a policy to protect themselves against financial and legal risks.
How Much Landlord Insurance Do I Need?
The specific amount of landlord insurance coverage needed varies from property to property. However, there are a few factors to consider when deciding how much insurance you need, such as how much it would cost to replace the rental structure following a loss.
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