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rental property insurance

Who needs it and what does it cover?


Rental property insurance, also called lanlord insurance, covers the unique risks taken in renting out your home or condo for long periods of time. Its coverage includes property damage, liability costs and loss or rental income for landlords renting their property. Whether you are renting your house, a vacation home or an investment property, rental property insurance is an important safeguard against the financial risk associated with tenants living on your property.


What does Rental Property Insurance Cover?


Rental Property Insurance coverage will vary, but policies will generally cover the dwelling or structure of your property, contents of the property belonging to the landlord, liability coverage and loss of rental income. Much of its coverage is similar to that of homeowners insurance, though it has unique features that homeowners insurance lacks and which account for the added risk of having tenants on your property.

rental property insurance coverage

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dwelling coverage

Just like homeowners insurance, rental property insurance covers physical damage to your dwelling, meaning damage to the structure of the home or apartment itself. For example, it will cover damage to your walls and your roof but not personal items of your tenant. Coverage will only extend to damage caused by a covered peril, and you should make sure to understand what type of perils, such as fire or lightning damage, are covered by your particular policy.

coverage for the landlord's personal property

Unlike renters insurance, rental property insurance does not cover the personal property of tenants inhabiting the property. However, rental property insurance will often include coverage for items left outside by the landlord. For example, if you left a lawnmower at your rental house and it is damaged by a fire--and fire is a covered peril in your policy--damage to the machine would be covered by your rental property insurance. On the other hand, if your tenant bought a personal air conditioning unit that is damaged by the same fire, the AC unit and the rest of the tenant's property would not be covered by your rental property insurance.

liability coverage

Liability coverage will protect you from the legal and medical costs associated with someone being injured on your rental property. If your tenant or a visitor is injured on your property, and you are deemed responsible for the injury, rental property insurance can cover these costs up to your policy limits. If you're someone for whom the limits of this coverage are not sufficient to cover potential liabilities and you wish to increase your coverage, you could also purchase umbrella insurance for your rental property.

loss of rent

This coverage protection against loss rent payments if the property you rent is uninhabitable due to a covered peril. You can think of it as a form of rent guarantee insurance. For example, if fires are covered under your rental property insurance, and fire damage makes your apartment uninhabitable, rental income protection covers you for the rental payments your tenants are no longer obligated to pay. Coverage will generally extend up to a defined period of time, such as 12 months. Loss of rental income does not always come standard with rental property insurance, so you should check your policy before purchasing it if this type of coverage is important to you.


Types of rental property insurance policies

There are different types of policies called "forms." Similarly, to homeowners insurance, differing rental property insurance forms have different levels of coverage. The descriptions provided below are generalized, but they can give you an idea of what to expect for each type of form.

dwelling policies

dp-1

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Rental property insurance is categorized as a Dwelling Policy, or DP, and the DP-

1 is the cheapest form with the most basic coverage. DP-1 forms usually only cover

named perils, meaning that if a peril, or disaster, is not explicitly named in the form you

will not be reimbursed for damage. These policies often reimburse you on an actual

cash value basis, meaning that your insurer will pay you for covered damage minus

wear and tear, called depreciation.

dp-2

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This form provides slightly broader coverage than the DP-1. Like the DP-1, DP-2

coverage tends to be on a named peril basis. However, DP-2 coverage will generally

extend to a broader range of perils. For example, an insurer might offer coverage for

burglary damage in its DP-2 policy but not in its DP-1. The DP-2 form also improves

over the DP-1 by typically providing coverage on a replacement cost basis, meaning

that damage will be covered at the price it would take to cover the damage at current

market prices, without accounting for depreciation.

dp-3

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This form, the most expensive, provides the broadest range of coverage of the

three. This type of policy will provide extensive peril coverage, protecting against all

perils except those explicitly excluded in the policy. Like the DP-2 policy, its coverage

will be provided on a replacement cost basis.

optional additions to your rental property insurance

The coverage provided by rental property insurance will vary by insurer, and coverage

that is standard with one insurer may be optional or unavailable with another. Below

we've listed a few examples of common endorsements you may be able to add to your

rental property insurance. Please ask us to shop for quotes to find the best combination

of price and coverage that fits your needs.

optional rental property insurance endorsements

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vandalism coverage

This usually covers deliberate physical damage to the home. Allstate is an example of an insurer that does not cover vandalism with its rental house insurance but offers it as an endoresment.

ordinance or law coverage

This covers a loss of value or costs associated with enforcing local laws surrounding the repair of property caused by an insured loss.

do you need rental property insurance if you have homeowners insurance?

It depends on how long you intend to lease the property, but in most cases homeowners insurance coverage won't be an appropriate substitute for rental property insurance. The presence of tenants in a rental property engenders unique risks that won't be covered by homeowners insurance, particularly if you plan to lease a property for an extended period of time. The type of insurance you need will depend on how often you rent out your home and the duration of your tenants' stays. These distinctions can be divided into three categories. Long-term renting, infrequent short-term renting and frequent short-term renting.