What Does Landlord Insurance Cover - ALLCHOICE Insurance - North Carolina

What Does Landlord Insurance Cover?

Estimated reading time: 8 minutes

Return To: Landlord Insurance – The Ultimate Guide

With more people required to stay at home or do telecommute work, being a landlord can seem like the windfall you need to weather the current global pandemic. While the rental market is far from being robust, housing will always remain a basic necessity — but not everyone can afford to buy a home. 

If you’re planning to become a landlord, you need to keep yourself protected from circumstances beyond your control (as demonstrated by the sudden emergence of COVID-19). While it’s not required by law, landlord insurance can keep you covered in case of property damage or when you experience losses in your business. Through this, you can ensure that your venture stays afloat. 

Keep reading to know more about landlord insurance and what it covers.

What is Landlord Insurance?

Getting landlord insurance means having coverage for your rental structure, liability, and personal property. This kind of insurance shares some similarities with homeowners’ insurance, though there are still key differences between them. For one, landlord insurance includes higher liability limits, which pertain to the maximum amount your chosen policy will pay to cover a loss. This is because landlords are considered more at risk than homeowners since the latter don’t earn any income from owning property.

Further to income, landlord insurance also covers loss of income. In the event you lose money as a direct result of damages to your rental property, that lost income will be reimbursed by your insurance company. How much would, of course, depend on your chosen policy. 

What is Covered by Landlord Insurance?

The plan you opt for and the insurance company you work with will determine the kind of coverage you can get as a landlord. Depending on your options, your landlord insurance policy may provide coverage for some or all of the following:

Property Damage

This type of policy typically covers the physical structure of your rental property in case it suffers damages from natural disasters such as fires, storms, hail, tornadoes, or earthquakes. Also included in this type of coverage are personal property like appliances that are accessible to or are being used to service tenants. Equipment utilized for maintaining your rental property also falls under this coverage.

Damages due to vandalism, theft, or the irresponsible actions of tenants may also be included in this policy. 

Liability

Liability protection covers legal or medical expenses that you might accrue if it’s proven that you, as the landlord, are responsible for the injury a tenant or individual suffers within your rental property. 

A few scenarios in which a landlord may be held liable include the following: 

  • Failure to comply with health and safety laws
  • Failure to make appropriate repairs or take reasonable steps to prevent an accident
  • Having knowledge of hidden danger
  • Committing intentional harm

Loss of Rental Income

When your rental becomes uninhabitable, this type of coverage allows you to reimburse your lost income during the period you’re unable to rent the property out. Aside from natural disasters, events that may lead your property to become uninhabitable may include pest or termite infestation, severe mold, and the like. 

Are There Extra or Optional Coverages for Landlord Insurance?

Since you can never be too careful as a landlord, it would be in your best interest to acquire added coverage in your policy. Consider the following:

  • Building code coverage: This covers the additional cost of having to repair or renovate your property to comply with building codes that have changed. 
  • Flood insurance: This type of coverage can be useful for when your property suffers damages due to flooding that may either be caused by natural disasters or municipal plumbing. Most policies typically exclude this coverage so you have to assess whether getting this policy is legally required in your state or if your property is located in a flood-prone area. 
  • Guaranteed income insurance: This covers instances when your tenant falls short or is unable to pay for their rent within a certain period. This scenario is even more pronounced as the current pandemic looms, with half of the 1,200 families surveyed last year by the community organization ParentsTogether Action saying they would be unable to pay their rent or mortgage by May 1 without risking essentials such as food. 
  • Non-occupied dwelling endorsement: This optional coverage is similar to loss of rental income coverage, except this applies when your property is uninhabited for more than 30 days.
  • Personal umbrella policy: Some damages to your rental property may be too much for your standard landlord insurance to cover. As part of your contingency plan, it may be beneficial to get a personal umbrella policy that can provide coverage beyond the limits of your property damage policy. 

What Isn’t Covered by Landlord Insurance?

Now that we’ve discussed what’s covered by landlord insurance, here’s what won’t be included in your policy:

  • Tenant’s personal belongings: This is covered instead by renter’s insurance. It’s a practice among landlords to ask their tenants if they have this type of policy. You may specify renter’s insurance as a requirement for your tenants before they sign the lease agreement so you’ll be protected from paying higher premiums and liabilities. 
  • Maintenance, repair, or equipment breakdowns: If appliances or equipment in the rental property need repairs, you as the landlord are responsible for getting them fixed. This is often an out-of-pocket expense. 
  • Property you share: If you’re renting out a room and you’re living within the rental property itself, you won’t be eligible for landlord insurance. In this case, it may be beneficial to ask your insurer for a landlord insurance quote to see if you can add coverage for this in your homeowners’ insurance. 

How Much Does Landlord Insurance Cost?

According to the latest estimates from the Insurance Information Institute (III), the average cost of homeowners’ insurance was about $1,211 in 2017. Since landlords have higher liability limits, they have to pay around 15% to 25% more for landlord insurance compared to homeowners’ insurance. 

Based on this information, we can compare the costs of landlord insurance with homeowners’ insurance between the years 2014 and 2018 if landlord insurance requires a payment that’s 25% higher: 

YearHomeowners’ InsuranceLandlord Insurance
20141,1321,415
20151,1731,466
20161,1921,490
20171,2111,514
20181,2491,561
Homeowners Insurance Cost Vs. Landlord Insurance Cost

To understand this further, here are several factors that may affect the premiums you’re paying for your landlord insurance:

  • Type and amount of coverage
  • Location of the property
  • Size of the property
  • Number of rental units available
  • The building’s age and condition
  • Security (whether the property has gated access, burglar alarms, or fire sprinklers installed)
  • Having extra fixtures such as swimming pools 
  • Whether smoking is allowed within the rental property as this can be considered a fire hazard

How to Reduce Landlord Insurance Costs

Any business can rack up significant expenses aside from requiring you to invest your time and effort into it. The same holds true for when you’re running and managing a rental property. Being a landlord can entail shelling out a substantial amount, but that doesn’t mean you have to spend an excessive sum for your landlord insurance either. 

Make no mistake — you shouldn’t scrimp on your landlord insurance as going for cheap policies might not provide adequate coverage, and you might end up with a bigger expense in the long run. 

Instead, consider the following ways by which you can save money on landlord insurance premiums:

  • Compare landlord insurance quotes: Just as you would shop around for clothes before making a purchase, you should also compare between which landlord insurance quotes can provide you with affordable rates while including the coverages you need. Weigh the pros and cons of each policy, and see which one provides the best value within your budget. You may also consider combining landlord policies. 
  • Work with a specialist landlord insurer: When comparing and shopping for quotes, also make sure that you’re getting one from a specialist landlord insurer or landlord insurance agency. Unlike buy-to-let mortgage companies, specialist landlord insurers won’t inflate the quotes they provide. A landlord insurance agency would also be able to guide you about the coverage included in a particular policy. 
  • Add security measures to your property: Reducing the risk of crime and burglary happening in your property may also lower the cost of your landlord insurance premiums. You can do this by investing in security measures such as locks, CCTV equipment, having adequate nightlights, etc. 
  • Screen your tenants well: High-risk tenants like students or Department of Social Services (DSS) tenants can increase the premiums you have to pay for your landlord insurance. Avoid high-risk tenants by conducting a background check on their criminal history, credit history, and employment history. Be aware of red flags that may also signal that a tenant is more trouble than they’re worth. Some of these signs include insisting to pay in cash, providing phony references, or being dodgy about their past. 
  • Keep your property in good condition: If your property is generally in good condition and follows the standards of the latest building codes, your premiums will be lower since it’s not highly susceptible to incurring property damage. 
  • Reduce vacancy periods: If your rental property is unoccupied for 30 days or more, it has a higher chance of being vandalized or burglarized, which means you have to purchase additional coverage to supplement your standard landlord insurance policy.  

The Bottom Line

Being a landlord may not be an easy job, but owning and managing a rental property could give you stable passive income, provided that you keep your property in tip-top shape. Aside from maintaining your property, you also need to ensure that it’s protected from damages and liability by getting landlord insurance. It’s important to know what’s covered in your standard landlord insurance policy so you can gauge whether or not it’s beneficial to buy extra coverage. While this may seem like a significant expense, it can save you from spending more money in the long run in the event your rental property does suffer from damages, or if you’re proven to be liable for tenant injuries. Following the Ten Commandments of Landlord Insurance can also decrease your chances of having to pay large premiums.

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