May 12, 2021

The Essential Guide to Landlord Insurance

by 
Obie

It’s the middle of the night. Your tenants are sound asleep. Outside, a storm is raging. Lighting flashes every few seconds.

After a loud clap of thunder, a stray bolt of lightning hits your property – catching it on fire. Your tenants make it out safely. However, your property isn’t as lucky — it has extensive fire damage.  And, until you repair it, your tenants can’t live there.

But, how are you going to pay for repairs? And, how are you going to make up for lost rental revenue during repairs?

If you have the right landlord insurance policy, you don’t have to worry. The replacement value of your property could be covered. And, some policies will also cover lost rental revenue. All you have to pay is a deductible. 

However, if you have a standard homeowner’s insurance policy, everything won’t be covered. As such, you’ll be on the hook for tens of thousands to repair your property. 

To fully protect your property, you need a landlord insurance policy. Don’t know how to choose the right one? We’ve got you covered. In this guide, you’ll find everything you need to know about landlord insurance. To start, let’s look at what exactly landlord insurance is. 

What is landlord insurance?

Landlord insurance (also known as a dwelling fire policy) provides financial protection if your property is damaged or becomes unlivable after events like fires. 

Unlike homeowner’s policies, landlord insurance typically doesn’t cover all contents of your property. Some contents like fixtures could be covered. Instead, it covers the dwelling itself, surrounding structures, and anything you leave there to help maintain the property (like a lawnmower). 

While not in every landlord insurance policy, you should make sure your policy specifically covers lost rent due to damage to your property. This lost rent coverage doesn’t cover vacancies unrelated to property damage. And, some landlord insurance policies also offer liability protection. If someone gets injured on your property, this liability coverage protects you from having to pay for their expenses out of pocket.

What does landlord insurance cover?

A landlord insurance policy covers your property – not the contents. But, what exactly does this coverage include?

It depends on the policy you choose. There are 3 common landlord insurance policies:

DP1

DP (dwelling policy)1 insurance has the least coverage of the 3 types. This insurance only covers 10 perils – which are events that could cause damage. If your property is damaged by a peril that’s not included, the policy doesn’t help you pay for repairs. 

If one of those events happens, the policy will pay you the actual cash value (ACV) to repair the damage. ACV is the replacement cost minus any depreciation. 

There can be tens of thousands of dollars difference between depreciated materials and new materials. As such, you have to pay more out of pocket to fully repair your property. 

DP3

DP3 offers the most comprehensive coverage. It’s also the most popular landlord insurance type. Instead of only covering specified perils, DP3 is an open peril/risk policy. So, it covers a wide variety of damage causes. 

Unlike DP1 policies, DP3 policies may pay out replacement cost value (RCV). So, if your property is damaged by a covered event, your insurance may pay out the full cost to restore your property to its undamaged condition. Not the depreciated value of the materials. This can save you tens of thousands of dollars if your property is ever damaged. 

And, DP3 insurance can also cover loss of rent. If you can’t pay your mortgage without rental income, you should consider having loss of rent coverage. That way, you don’t risk losing your property if damage occurs. 

And, DP3 policies generally include liability protection. If a tenant injured themselves on your property, you could have to pay for their medical expenses. With DP3, your insurance will cover any medical expenses related to liability. 

Landlord Business Owner Policy (BOP)

Business owner policies are typically for small, low-risk businesses – like real estate investments. 

A Landlord BOP combines business property and liability coverage into one policy. So, it can cover damage to your property. And, it can protect you in the case of liability from things like tenant injuries on your property.

This policy can also include loss of income protection. If tenants can’t live in your property while you’re repairing covered damage, a landlord business owner policy could compensate you for this missed rent.

Optional Coverage

Along with the main landlord insurance types, you can also opt for supplemental coverage for events not covered by your policy. Some examples include vandalism and burglary coverage and building code protection. If any of these events happen, you’ll be protected if you choose optional coverage. 

What isn’t covered by landlord insurance?

What’s covered is determined by the policy type you choose. But, there are a few things that aren’t covered by landlord insurance.

Maintenance problems

Your landlord insurance won’t cover all appliance breakdowns or equipment (like your furnace) malfunctions. Some mechanical problems and equipment breakdowns could be covered. But, you may have to pay out of pocket to fix maintenance or equipment issues. 

Tenant contents

Landlord insurance protects your property, mainly the dwelling itself. It doesn’t include any protection for tenant items – like their furniture or other personal belongings. So, it’s always a good idea to encourage tenants to have a rental policy. That way, both you and your tenant are protected in the event of damage.

Shared property

If you live on the property and rent out part of it, a landlord policy likely won’t cover anything. It’s best to get a comprehensive homeowner’s policy if you own a shared property. 

Do I really need landlord insurance coverage? How is it different from homeowner’s insurance?

At first glance, homeowner’s and landlord insurance can seem nearly identical. But, landlord insurance offers a few important benefits that make it essential for every landlord.

Liability coverage

Many homeowner’s policies offer personal liability coverage. However, this liability protection doesn’t extend to business activities – like renting out property. So, if you rely on a homeowner’s policy, you could be on the hook for tenant medical expenses if they’re injured. 

Landlord insurance provides business liability protection. So, you’re covered if any injuries happen on your property. 

Additional coverage

Homeowner’s policies focus on covering the structure and its contents. 

Instead, you need specialized coverage like lost rental income or ordinance and law coverage. If you rely only on a homeowner’s policy, you’ll have to make up for the lost rent on your own. Or, pay for building code updates during repairs yourself. So, having a landlord insurance policy ensures you’re better covered.

What's not covered

Some homeowner’s policies won’t cover a property you don’t live in. So, you might think your rental property is covered by your homeowner’s policy. But, when you need to file a claim, you’ll find that the property isn’t covered because you don’t live there.

To avoid paying for repairs entirely out of pocket, you need a landlord-specific policy. Since these policies are made for landlords, you can rest easy knowing you’re covered.

What’s the cost of landlord insurance?

Landlord insurance usually costs between 15-20% more than homeowner’s insurance. That’s because insuring renters is a higher risk. Since they don’t own the property, renters aren’t as careful. This results in more damage and claims – which costs the insurance company more. 

In recent years, the average homeowner’s insurance policy costs $1,249 a year. So, at a 20% increase, the average landlord insurance policy costs $1,499 yearly. Things like age, location, and rental type (short vs. long-term) play a role in how much your landlord insurance will cost. 

While landlord insurance is more expensive, there are ways you can lower your premium. One way to do that is with security and smart home features. They provide an early warning for problems like break-ins, flooding, and more. Having these features means any problems will be less severe – lowering your insurance risk and premium.

Getting your landlord insurance quote

You know you need landlord insurance. But, where do you start? With a quote of course!

The traditional process for getting your quote can be time-consuming. You go back and forth with your broker trying to find the right policy. But, brokers can be slow to respond. So, you have to wait and wait and wait for your quote.

And, when you get your quote, you have no idea why it costs what it does. Comparison shopping for landlord insurance can make the process even more time-consuming and frustrating. So, it hardly seems worth it. But, you have no idea if you’re overpaying.

Don’t go through the lengthy and difficult traditional landlord insurance process. Instead, take the modern approach. That’s what we specialize in at Obie. With our innovative approach, you can get a quote in minutes. And, the whole process is online and transparent. 

The best part? Landlords save an average of 25% on insurance with Obie. 

If you want the right coverage at an awesome price, get started by getting your quote from Obie today.