For a long-term investor, protecting a rental property is a top priority. While homeowners insurance helps cover aspects of your property, rental investors face unique risks not covered in basic homeowner packages. That’s why many investors turn to landlord insurance to fill the gaps, while minimizing risk and exposure for their property and business.
But what is landlord insurance? While many investors know the importance of rental property insurance, they don’t understand the difference between it and homeowners insurance. Luckily, CIVIC is here to help!
In this article, we’ll explain landlord insurance, its key components and costs, and how it differs from homeowners insurance.
But what is landlord insurance? While many investors know the importance of rental property insurance, they don’t understand the difference between it and homeowners insurance. Luckily, CIVIC is here to help!
In this article, we’ll explain landlord insurance, its key components and costs, and how it differs from homeowners insurance.
What is Landlord Insurance?
Landlord insurance, or buy-to-let insurance, is designed specifically for property owners renting residential properties to tenants. Unlike homeowners insurance, landlord insurance policies offer tailored protection programs to cover the unique risks associated with tenant-occupied properties.
Landlord Insurance vs. Homeowners Insurance
The main differences between landlord insurance vs. homeowner insurance are the coverage focuses and costs. Homeowners insurance is designed for owner-occupied properties with coverages that protect personal belongings, additional living expenses if the home becomes uninhabitable, and personal liabilities. Landlord insurance is much more detailed, with a focus on protecting rental property structure, landlord liability, additional property, and rental income.
For more protections, which we’ll dive into below, buy-to-let insurance costs are typically 15-30% higher than comparable homeowners insurance costs for the same property. These higher landlord insurance costs reflect the higher risk associated with rental properties, including:
For more protections, which we’ll dive into below, buy-to-let insurance costs are typically 15-30% higher than comparable homeowners insurance costs for the same property. These higher landlord insurance costs reflect the higher risk associated with rental properties, including:
- A greater likelihood of property damage
- Increased liability exposure
- Potential for vacancies
- Additional coverage options for rental-specific scenarios
Key Components of Landlord Insurance
Landlord policies often cover the physical structure of your rental property and any financial interests associated with or belonging to the property owner. Buy-to-let insurance is insurance for landlords and does not cover any property belonging to the tenants. That is why landlords often require tenants to obtain their own renters insurance policies.
Property Protection
Property insurance for rental properties typically comes in three forms: DP1, DP2, and DP3.
DP (Dwelling Property)1 landlord building insurance provides standard property protections for the rental units, including:
DP (Dwelling Property)1 landlord building insurance provides standard property protections for the rental units, including:
- Fire and smoke damage
- Lightning strikes
- Riots or other civil disturbances
- Windstorms and hail damage
- Water damage (certain types)
- Explosions
- Vandalism
DP2 insurance includes all of DP1 along with broad protections for 18 additional risks, including:
- Burglary damage
- Freezing pipes
- Sudden/accidental damage from electrical currents
- Roof damage from ice or snow
- Unintentional leakage, discharge, or overflow of water or steam
- Glass breakage
- Falling objects
- Structural collapses
- Cracking, burning, or building
- Aircrafts
DP3 is the most comprehensive landlord insurance coverage for rental properties. It is known as an “open peril” policy, covering all additional perils, including:
- Earthquakes
- Water damage
- Power failure
- Neglect
- War
- Nuclear hazard
- Intentional loss
- Government action
- Mold
Landlords can often enhance or add protections through coverage add-ons at additional costs.
Liability Insurance
Specially designed insurances for landlords include liability coverages to protect owners in the case of an injury on or in a rental property. Liability insurance will often cover any costs pertaining to:
- Medical expenses
- Legal defense if the property owner is sued
- Any settlements or judgements against the property owner
Loss of Rental Income
Nothing can derail a successful investment business quicker than long-term vacancies. To protect from slow markets or property damage that causes a property to remain vacant for weeks, months, or even years, investors buy rental income insurance.
Let’s say your rental property has severe fire and smoke damage. While your property protection coverage will cover the costs to repair your property, rental income insurance helps replace the lost rental income throughout renovations.
Let’s say your rental property has severe fire and smoke damage. While your property protection coverage will cover the costs to repair your property, rental income insurance helps replace the lost rental income throughout renovations.
Other Structures
Other structures is another standard coverage for rental property insurance. It covers any detached structures on your property, including:
- Sheds
- Fences
- Gazebos
- Pools
- Bars
Additional Add-on Coverage Options
While most landlord insurance policies come with some form of property protection, liability, other structures, and rental income coverage, there are additional add-ons that can be beneficial for investors, including:
- Guaranteed Income Insurance: Covers rental payments for delinquent tenants.
- Emergency Insurance: Helps pay for immediate repairs in emergency situations.
- Building Code Coverage: Keeping up with constantly evolving rental regulations and changes to building codes can be difficult and costly for landlords. Building code coverage pays for any upgrades required in the most recent regulatory updates.
What Is Not Covered By Landlord Insurance?
Landlord insurance, while beneficial, does not cover all aspects of your rental property, including:
- Mechanical Equipment: Hot water tanks, furnaces, HVAC systems, or other costly mechanical equipment breakdowns will not be covered by your rental property insurance, so have your systems regularly checked and maintained.
- Tenant’s Belongings: Again, tenants are not covered under landlord insurance policies. Tenant belongings and liabilities must be covered under a separate tenant insurance policy.
- Deductibles: Landlord insurance doesn’t cover any deductibles in the insurance contract. Landlords are responsible for covering the deductible before the insurer can pay the rest.
Do I Need Landlord Insurance?
While rental property insurance coverage does include several benefits, it is not legally mandated in most jurisdictions. However, it is important to speak with your lenders and consider your investment strategy before deciding whether or not to purchase a landlord policy.
In most cases, lenders require borrowers to obtain landlord insurance to qualify for a loan. And, your long-term strategy can dictate if you need coverage and what for. Long-term dedicated rental properties often require standard landlord insurances for coverage. Vacation rentals, on the other hand, may not require a full landlord insurance policy. Lenders may only require borrowers to add protections to the properties’ homeowners insurance plan.
In most cases, lenders require borrowers to obtain landlord insurance to qualify for a loan. And, your long-term strategy can dictate if you need coverage and what for. Long-term dedicated rental properties often require standard landlord insurances for coverage. Vacation rentals, on the other hand, may not require a full landlord insurance policy. Lenders may only require borrowers to add protections to the properties’ homeowners insurance plan.
CIVIC: Your Financial & Rental Investment Partner
Understanding the differences between landlord insurance vs. homeowners insurance and the different components of rental property insurance is critical for investors. Another necessity for investment success is adequate and reliable funding.
CIVIC has been helping long-term investors find, purchase, protect, and profit from rental investments for over a decade. Our team of industry experts provides the insights, knowledge, and capital needed to outperform the competition and become successful in today’s markets.
Our Single Rental loan and Rental Portfolio loan options provide:
CIVIC has been helping long-term investors find, purchase, protect, and profit from rental investments for over a decade. Our team of industry experts provides the insights, knowledge, and capital needed to outperform the competition and become successful in today’s markets.
Our Single Rental loan and Rental Portfolio loan options provide:
- Competitive 30-year term loan options
- Maximum rental flexibility
- SFR, warrantable condos, townhomes, PUD, and 2-4 units eligibility
- DSCR blanket loan with no W2s, paystubs, or tax returns required
Whether it’s guiding investors toward the necessary landlord insurance or working with them on an investment property, CIVIC has the tools and resources to help you succeed. CLICK HERE to schedule a FREE consultation today.
