TL;DR

Landlord insurance is a type of protection—often mandatory— that offers coverage specific to someone who owns a property and leases that property to tenants.

Standard Landlord Insurance covers property damage, liability and some limited forms of rental loss. Add-on coverage can be purchased to protect landlords from additional risks.

The amount of coverage you invest in should be calculated by assessing the specific values, benefits and risks of your property.

What Is Landlord Insurance?

Specifically designed for landlords and rental properties, landlord insurance protects homes that you rent out for income, resulting in profit and loss. Landlord insurance covers not only the physical aspects of the property, such as (depending on your coverage, as there are additional add-ons available) paying out for repairs after a fire or storm, but also if a tenant or third party, like a friend or contractor, is injured at the property.

It's important to note that it differs from homeowners' insurance, which we will examine in depth in the next section. Also, you’ll find that landlord insurance is required by many lenders when applying for a mortgage. This is because it helps lenders like banks protect their interests by safeguarding the asset on which they are lending money.

How Does Landlord Insurance Differ From Homeowners Insurance?

Both types of insurance protect homes, so they must be the same, right? Well, no, in fact, landlord insurance is totally separate from homeowners insurance in several ways. The first way in which these two types of home insurance differ is that landlord insurance is not designed for owner occupancy. What this means is that it's not designed for people who live in the house they own, but for homes that are rented out to tenants. This is because insurance providers see the risk associated with tenants differently. Indeed, the risks associated with renting out a property mean that landlord insurance premiums are usually higher than homeowners' ones.

Another way in which landlord insurance is different to homeowners insurance is that it includes rental income protection. What this means is that landlords are reimbursed for the cost of repairs if their property is damaged. Something that means that the price of such repairs does not end up eating into their usual income.

Finally, landlord insurance covers many different property types from single homes and apartments to multi-unit buildings. This means it provides flexible protection for landlords across their entire portfolio of properties, even if they are not all the same kind.

What is Typically Included in Landlord Insurance

If you are wondering what landlord insurance covers, the answer is three main aspects of protection: damage to your property, liability related to your property, and some kinds of lost rental income. All of which are discussed in more detail below.

Property Damage Protection

Property damage protection is an aspect of landlord insurance coverage that protects the physical structure of your property. It's designed to pay out if the structure or any fixture covered by the policy is damaged by events listed in said policy. The following damage types are usually covered by property damage protection.

Fire

When it comes to fire damage, depending on the policy, landlord insurance is likely to cover things such as destroyed walls, roofs, and interiors. However, it's important to note that landlord insurance is only likely to pay out for these issues when the fire was accidental and not intentional in nature.

Storm & Weather

Landlord insurance also usually covers damages caused by wind, hail and storms. This includes structural damages such as shingles that have been blown off roofs, cracked sidling and broken windows.

Vandalism

Landlord coverage will typically protect property owners against intentional acts of vandalism, including those done by outsiders. Although vandalism done by tenants, something that is unfortunately all too common, usually requires an insurance add-on.

Water Damage

Only certain types of water damage tend to be covered by Landlord's Insurance. These tend to be suddenly developing issues, such as burst pipes, and the damage they can do to floors and walls. However, neglect that happens over time will not be included in your policy, such as gradual leaks or mold may not be covered.

Appliance & Fixtures

In some cases, fixtures and appliances inside the property may be covered by this type of landlord insurance. Often, policies will require such items to be built-in or fixed, such as built-in dishwashers or refrigerators. Tenant-owned items will not be covered.

Remember that the specifics of each policy will differ, so be sure to check that you have the required coverage before signing up.

Liability Insurance For Landlords

Another important aspect of good landlord insurance is liability insurance. This is insurance that protects you as the property’s owner from the financial costs of damage, injury and accidents in connection with your property. Costs that can run into hundreds of thousands of dollars!

  1. Tenant injury claims: Liability insurance usually covers tenant injury claims, which means it pays out for tenant medical costs after an accident at your property, if you are found to be at fault by the court. Tenant injury claims, such as slips and falls, can be a substantial risk for landlords, and by investing in this type of insurance, you can help safeguard your personal finances and savings if a claim is brought against you.
  2. Legal defence costs: Another type of coverage that landlord insurance with liability provides is protection against legal costs. Often, when a case is brought against a landlord and when they are found to be at fault, the Court will not only award medical costs, but legal costs as well. Happily, liability insurance should protect you from this.
  3. Third-party protection: Third-party liability protection for landlords ensures that even in the case of a visitor being injured, such as being hit by unrepaired masonry, your personal finances are protected. Similarly, you will be protected against footing the cost for things such as accidental damage being done to a neighbouring property, like if a fence blew into the next door's garden and smashed a window.
  4. Lost rental income: Lost rental income is also typically included in Landlord Insurance, but it's worth clarifying that this is only in certain situations. For example, if something happens, such as severe pest infestation and your property becomes no longer livable by tenants, this aspect of landlord insurance will cover the cost of the rent that you would normally get. However, if your property is livable, but the tenant has a cash flow crisis and is unable to pay, and you lose rent, standard landlord insurance is unlikely to cover this. Instead, if you want to be protected against this type of situation, then you would need to add additional coverage to your policy, as described below.

Additional Coverage Options Explained

If you need coverage that is not provided under your standard landlord insurance agreement, you can add more for a fee. indeed there are several additional coverage options, including the following.

  • Rent protection

One thing that you can get additional coverage for as a landlord is protection against unpaid rent. This will protect you and provide income continuity even if your tenant stops paying, whether they are short on cash or because the landlord tenant relationship has soured.

  • Flood insurance

Additional coverage for flood insurance is also popular, especially if you live in a flood zone or other high-risk area. Choosing this type of protection means you will be covered from the often huge cost of serious flood repairs.

  • Tenant vandalism

Known as malicious damage, if you want to be covered for tenant vandalism to your property is usually seen as a separate risk by insurers and so requires a policy add-on.

  • Emergency insurance

Some property issues that tenants need help with will be emergencies, such as a leaking washing machine, a failing boiler, or being locked out if their key is lost. In such cases, calling in a professional equipped to deal with the issue on a short time scale is crucial but will also come with an added cost. Investing in this type of insurance should protect you against having to fund this cost from your personal finances.

  • Building code insurance

After major damage, you will have to ensure that any rental property you won is brought back up to code before any tenants can move in. By purchasing this additional form of insurance, you can protect yourself from having to foot the entire cost of this task.

How Much Coverage Do You Need?

It's important for landlords to carefully decide how much coverage they will need when investing in insurance. This is because they must weigh up the initial outlay compared to the potential benefits they could receive. Indeed, there are a range of factors that landlords must consider when deciding how much insurance to buy, including:

Rebuild cost. If the cost to repair or rebuild your property is high, then it's likely that investing in more insurance coverage is wise, as it will protect you from having to cover these expenses from your own personal budget. Just remember that you will need to use the reconstruction and not the market value of your property to work this out. You will also need to make sure that you include labor costs in your calculations.

Liability limits. Similarly, if you are particularly concerned about the liability risks of your property, choosing a policy with higher liability limits makes the most sense. In fact, by opting for a policy with higher liability limits, you can protect your other investments and assets too, as you will not have to liquidate them to assume any expenses incurred by liability issues.

Rental income value. It's also important to invest in coverage that covers the income you expect from your rental property. In other words, a savvy landlord will make sure that their policy offers coverage that reflects their real earnings, meaning they won't end up being out of pocket if the worst happens.

Property location risks. It's also worth noting that it's crucial to review these aspects each year as they will change annually, and along with any improvements you or changes you make to your property, such as renovations or a different level of occupancy.

Reasons Landlord Insurance Is Essential

Investing in landlord insurance is essential for anyone who owns a property they plan on renting out to tenants for so many reasons. The first is that landlord insurance protects your investment, safeguards your equity, and reduces any financial issues should something happen.

Secondly, landlord insurance is crucial because it defends you, the owner, against the risk of being exposed to a lawsuit. Remember, injury claims can be incredibly costly, and quite easily bankrupt you personally, but having the correct landlord insurance can prevent this, not to mention give you much greater peace of mind, and lower your stress levels as a landlord!

Another reason that landlords should purchase the proper insurance is that it ensures a consistent stream of income. This is because LLI can bridge any gaps in income and so minimize any financial strain, allowing landlords to continue to pay their mortgages on time, and without penalties.

Also, because lenders often require that anyone looking to purchase a buy-to-let property have landlord's insurance, it can help you secure the loan you need to be a landlord. Similarly, it also ensures compliance and makes sure that you do not end up defaulting on your mortgage because of this condition.

Landlord Insurance FAQs

Is homeowners' insurance enough for a property that I’m renting out to tenants?

No homeowners' insurance is designed only for people who live in the property they own. Since there are more risks associated with renting out a property to tenants, you will need to purchase proper landlord's insurance to be covered.

Are renter’s insurance and landlord insurance the same thing?

No, renters’ insurance and landlord insurance are not the same thing. Renters' insurance, paid for by the tenant, is designed to cover the cost of the loss or damage of the tenant's personal property, as well as cover any liability in case of the tenant's responsibility for injury to visitors or the building itself.

Landlord insurance, paid for by the landlord, is designed to protect the landlord against damage, liability and lost rental income.

Will I pay more for landlord insurance than homeowners' insurance?

Yes, landlord insurance is usually more expensive than both homeowners and renters insurance. This is because it protects the landlord and their higher-value asset against greater risk.