Getting Started As A New Landlord

Landlord Insurance: What Is It And Do You Need It?

August 23, 2023

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A Guide To Landlord Insurance

If you’ve recently acquired a new investment property, you may be wondering if purchasing landlord insurance is really worth it.  

Unfortunately for those looking to save a buck, the truth is that every real estate investor needs a landlord insurance policy. Without one, you’re putting yourself at risk of paying out of pocket for any number of unexpected problems that occur with your rental property, including storm damage, evictions, or liability. You may not like cutting the check for it every month, but you’ll thank yourself later when you need it. 

In this article, we break down everything property owners need to know about landlord insurance and how to keep yourself and your property investment protected in those “just in case” scenarios. 

Insurance for Landlords: What Is It? 

If you own a home and live there as your primary residence, you likely have a homeowners insurance policy. A standard homeowners policy pays for damages resulting from fires, theft, vandalism, storms, or natural disasters. 

Insurance for landlords, similarly, covers possible liabilities or damage that could occur to your investment properties, which you do not live in (If you do live in your investment property—for instance, if you’re house hacking—you may need a different policy or multiple types of insurance).  

What Does Landlord Insurance Cover? 

Your next question is likely, “What does landlords insurance cover?”.  

Every landlord insurance policy is different, as some companies offer different landlord coverages than others, and often your personal needs and preferences play into your coverage as well. What is covered in landlord insurance depends on your rental properties’ locations, specifications, the hazards they’re particularly vulnerable to (e.g., flooding if your property is in a flood zone), and your personal preferences. 

Traditionally, however, a landlord policy covers three main areas: 

  1. Physical property damage – This includes any physical damage to your property resulting from storms, fires, natural disasters, wind, or criminal break-ins. 
  1. Lost rent – If at any point your property suffers damage from any of the above causes, it’s possible that it won’t be habitable until repaired. Your tenants will have to move out, and you’ll lose their rent money. Landlord insurance typically reimburses you for that lost rent. 
  1. Liabilities – Liability insurance covers the cost of your legal or court fees should a tenant sue you in court for any number of reasons. For instance, if a tenant suffers a serious injury from a malfunctioning appliance on the premises, your landlord insurance can cover the cost of an attorney as well as any reparations you may be ordered to pay (e.g., medical bills). 

Landlord insurance coverage does not include your tenants’ personal property or liability, which is why your tenants need their own renter’s insurance policies from a reputable insurance company.

What Is a Landlord Umbrella Policy? 

You may have also heard of another type of insurance, landlord umbrella policies. An umbrella policy is essentially a second layer of insurance that provides supplemental coverage beyond what your traditional landlord insurance policy provides.  

For example, let’s say you become liable to a tenant for negligence that caused a medical condition or injury on the premises. Given that most landlord insurance policies only offer up to $1,000,000 in liability coverage, you may find yourself exceeding your policy limit. An umbrella policy can cover the liability that exceeds your traditional policy including legal fees, settlements, or other court and legal costs. It serves as a catch-all safety net that can help you avoid serious debt if a major liability were to occur, especially in states that see lots of liability claims against landlords. 

If you’re interested in a landlord umbrella policy, talk to your insurance provider or shop around at different insurance companies for the best landlord insurance discounts.

How Much Does Landlord Insurance Cost? 

The cost landlord insurance may incur on your finances is not insignificant, but neither are its benefits when something goes wrong. It’s worth paying the annual premium for the peace of mind and protection. 

How much you’ll pay for insurance depends on several factors, including: 

  • The location of your property 
  • The type of building (single-family home, multi-family complex, condo, etc.) 
  • Its age and condition 
  • How much coverage you need 
  • Whether your region is especially vulnerable to certain natural disasters (e.g., flooding, hurricanes, wildfires, etc.) 

Bobvila.com estimates the national average cost of landlord insurance to be $2,100 per year. But these rates vary considerably by state. The National Association of Insurance Commissioners (NAIC) estimates for average premiums by state range from as low as $913 (Utah) to as high as $2,484 (Louisiana).  

And just because you live in a certain state, that doesn’t mean you’ll end up paying that state’s average. It’s best to speak with an insurance agent who can send you a more accurate estimate of what you’ll pay based on your property and coverage preferences. Many landlord insurance companies offer affordable coverage plans.

Your premium is divided into equal monthly installments, which contribute to your monthly investment property expenses. But in terms of the cost landlord insurance totals up to, you’ll find it’s worth the potential financial, legal, and personal risk you’re avoiding. 

Do You Need Landlord Insurance? 

New investors often have a laundry list of expenses to keep track of. Between interest payments on the mortgage, yearly property taxes, management fees, closing costs, marketing/advertising fees, and other costs, insurance may just feel like one more financial burden. 

However, it’s important to maintain a long-term perspective for your rental business. It’s highly unlikely that you’ll never experience property damage or liability in your career as a landlord, and when you do, you’ll want it covered. Legal fees can range from a few hundred to tens of thousands, which makes your monthly insurance bill of $76 to $200 seem manageable after all. 

Conclusion 

In life and in business, we need to prepare for what we can’t control or predict. Purchasing an insurance policy is part of that preparation. As a real estate investor, you invest your money into the future via your properties, and you’re doing the same by getting those investments properly insured. 

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