Thinking of renting out your home? Then you may need a landlord insurance policy. Here’s what you need to know to decide if you should get landlord insurance, some money saving tips, and coverage needs to consider if you are renting your house to others.
What Is Landlord Insurance?
Landlord insurance is the kind of insurance for when your home is being rented to others on a regular basis. It takes into consideration the risks associated with having a rental property, including protecting your rental income. Depending on the kind of property you have, there may be various coverage options or endorsements available to choose from in your landlord insurance policy.
Examples of Landlord Insurance or Rental Property Coverage:
- Coverage for the building and additional structures against specified named perils
- Coverage for personal items used to maintain the property kept on site
- Rental income protection
- Liability as a landlord
Does Homeowner Insurance Cover When You Rent Out Your Home?
No, standard homeowner insurance covers homes used as the primary residence of the homeowner; it is not meant to cover rental properties.
Ask your home insurer if they can add your rental property as a second location on your home policy. This may save you money on your insurance costs. Stand-alone landlord insurance may be more expensive.
When Do You Need Landlord Insurance?
Whether you need landlord insurance or not will depend on several factors. Here is a 10-question and answer checklist to provide the insurance company to find out if you need landlord insurance.
- How often will the home be rented out? Daily, weekly, monthly, seasonal, or yearly? Length of rental is an important factor in determining the kind of insurance you need.
- Will there be a lease? (If you won’t have a contract, this is relevant too).
- Who are the renters? The insurance company may want to ask information about their insurance history, and may also want to know their names, dates of birth, and occupations to understand the risk better.
- Will you require that your tenants have renter insurance?
- How much income do you make from rent? Why is the home being rented out?
- When the home is not rented out, is it vacant? Learn more about vacancy permits.
- How far do you live from the rental property?
- Who is responsible for the maintenance of the property or problems that arise with the rental?
- Who is responsible for finding tenants?
- Will the rental be furnished? Do you need contents insurance?
Any time you’re renting out your property you need to let your insurance company know and they will determine what kind of insurance would be right for your circumstance.
Examples: When Do You Need Insurance To Rent Your Home Out?
If a person is only renting out their home for a brief period, the insurance company may decide they are willing to allow the rental of the property as an exception without changing to landlord insurance.
For example, Jane decides to go on a trip. Her best friend’s daughter will be visiting for the summer, she doesn't have anywhere to stay. Jane comes up with an idea. She doesn’t want to leave her house empty, so she agrees to let her stay in the house in exchange for a small rent. In a situation like this, the insurance company needs to be advised. They may ask for information about the relationship between Jane and the “renters”. If the underwriters agree this is an exceptional situation, then they may not require Jane to take a landlord insurance policy.
If the usual use of a home is not a rental, and the intention of the property is not to be a rental property, an insurance company may not require landlord insurance. They will evaluate on a case by case basis. They may add a rental endorsement, and adjust or limit coverage instead.
However, if for example, Jane is renting to some people who are “friends of friends”, or strangers and she does this every year, or every few months, then her insurance company may require landlord insurance or recommend “home sharing” insurance instead.
Another example is when a homeowner sells a home and the new buyer will be renting for a limited time before officially becoming the new owner. In this case, the insurance company may “accommodate the risk” by limiting coverage, but may not require “landlord insurance”.
5 Coverage Questions To Ask About Landlord Insurance
- Do you have all risk coverage or limited “named perils” coverage? Are things like vandalism covered, for example?
- What are the exclusions and limitations?
- Is water damage coverage included or available?
- Will claims be settled on replacement cost or actual cash value basis?
- Can you get insurance discounts with alarm systems, a higher deductible, or other safeguards?
What Does Rental Income in Landlord Insurance Cover?
Rental income protects the amount of money that you receive in rent. If the rental property is uninhabitable due to a disaster claim, the renters will have to live somewhere else and may have additional living expenses. The renter's insurance policy will take care of them, but they will not be paying your rent for a unit they can not live in. Rental income coverage can take care of you and the value of the lost “rents”.
Does Landlord Insurance Cover Renters' Personal Belongings?
No, landlord insurance does not insure renters' personal property. They have to get their own renters insurance policy. As a landlord, it is recommended to ask your renters to have their own liability coverage.
How Much Is Landlord Insurance?
Prepare for the cost of landlord insurance to be 20% more, and in some cases, as much as double the average price of your home insurance depending on the circumstances and where you decide to purchase your rental property insurance coverage from. Depending on the increased risks, your insurance company will determine what the premium will be. Each situation will be different, it may cost more or less, there is no “flat rate”.
Is Landlord Insurance a Good Idea?
Landlord insurance is not only a good idea but a necessity when you rent out your home. If you’re using your home for any reason other than a primary dwelling for you and your family, let your insurance company know. If you don’t, you may not get paid in a claim. Always speak to a licensed insurance agent or broker about your situation to help you understand what coverages you need and what your options are.