Yes. According to the Insurance Information Institute, a landlord insurance policy costs about 25% more than a homeowners insurance policy for the same property. The primary reasons for the difference in cost revolve around who is occupying the home. Insurance providers often see lower average claim amounts and fewer claims for owner-occupied homes when compared to tenant-occupied rental properties.
Differences in liability insurance coverage can play a role in the cost of landlord insurance as well. Often, landlord insurance policies offer more liability coverage than a standard homeowners insurance policy, driving the cost of some landlord policies higher.
However, cost is only one consideration when choosing coverage for a rental property. You’ll want to protect your investment property with the right type of policy to ensure you’re covered properly if you have a loss.
Free Resource: If you want a good overview of landlord insurance check out our Ultimate Guide to Landlord Insurance
Landlord Insurance vs. Homeowners Insurance
First, it's important to purchase the right kind of insurance policy for the usage type. In fact, whether a claim is covered may depend on having the right type of policy in place. As an example, if you decided to open a car rental business and buy a fleet of cars, you wouldn’t insure the rental cars on your personal auto policy.
The risks are different — and the insurer won’t cover claims because the policy doesn’t match the real risks. Insuring your investment real estate follows the same logic. Even for a single-family home, you lived in previously, if you decide to rent the home out, the risks change.
You’ll need a landlord insurance policy for long-term rentals. Frequent short-term rentals need special coverage as well.
Landlord insurance covers similar risks to those that homeowners insurance covers, but there are still some key differences. Many landlord insurance policies are all-risk policies that cover all types of property damage — except for those excluded by the policy. Exclusions are often limited to preventable losses, such as neglect or intentional property damage, and risks tied to location, such as earthquake or flood coverage.
Expect coverage for common risks such as fire, theft, vandalism, and many types of water damage, although flood damage typically requires a separate policy.
However, your landlord insurance policy also offers expanded liability protection, often with higher limits than you’ll find on a standard home insurance policy. Investment property owners have more to protect and potentially face greater exposure because renters may not be as careful with the property.
A helpful way to view the difference between homeowners insurance cost and landlord insurance cost is to think of your homeowner's insurance policy earning a discount because the property is your primary residence. Your insurer has a greater assurance that you’ll be on guard against risks and take precautions to prevent claims if the property is owner-occupied.
While these property insurance types are similar, your homeowner's insurance company may not offer landlord insurance. Again, this is likely because the risks are different based on who lives in the home.
On a side note:
If you have homeowners insurance and you want to run an at-home business then see incidental occupancy. Also, if you are interested in how insurance companies figure the amount they need to pay towards a loss covered under the homeowner’s policy on your insurable interests then see insurance to value.
Coverage for loss of rental income
While landlord insurance policies offer coverage similar to your home insurance policy, some policy features apply in a different way. Most homeowners insurance policies provide coverage for loss of use. If your home becomes unusable due to a covered loss, your insurer can help cover additional living expenses while your home is being repaired.
But loss of use takes a different form with a rental property. Instead of hotel costs and the extra expense of eating out because the home is damaged, you may have a loss of rental income while the home is being repaired. A well-structured landlord insurance policy lets you customize coverage for loss of income.
When considering the difference in cost between a landlord insurance policy and a home insurance policy, weigh the value of rental income that your policy can provide if your rental property is damaged. A standard home insurance policy can’t replace lost income.
Expanded liability coverage for landlords
Most landlord policies provide liability coverage which can help cover costs for injuries to others or damage to the property of others. Often, policies also cover court costs and legal fees, which can add up quickly even if no liability is found. As an added benefit, coverage for your defense usually occurs outside your coverage limit. This means the cost of your defense won’t reduce the amount of coverage you have available to settle liability claims.
While landlord policies often offer higher liability coverage limits when compared to a standard homeowners insurance policy, many investment property owners choose to expand coverage with an umbrella policy. Umbrella insurance expands the coverage limit of underlying policies, making umbrella coverage a common choice for landlords with several policies.
Personal property coverage
Coverage for personal belongings is often calculated using actual cash value, which means most items will be insured for a depreciated amount. If you need full replacement cost coverage, some policies offer that option. Alternatively, consider storing valuable tools off-premises.
It’s important to note, however, that your tenant’s personal property is not covered by your policy. This is also true of your tenant’s liability for injuries. Both risks can be covered with a renters insurance policy. Many landlords require tenants to purchase renters insurance as a lease condition.
Ways to reduce your landlord insurance premiums
While rental property insurance costs a bit more than homeowners insurance for the same property, there are still some ways to reduce the cost of your policy.
Insurers often offer discounts for updates. For example, a new roof might earn a better rate. In some markets, stormproof windows can lower overall costs as well. Check available discounts with your insurer before making an investment, but if your property needs upgrades anyway, there may be some savings available to help offset the cost.
Also, consider your deductible. The deductible is the part of the claim that you pay and by choosing a higher deductible, you can probably save money on premiums. Landlord policies often offer higher deductible options when compared to a homeowners insurance policy.
Look at bundling options as well. Many insurers offer discounts for buying more than one insurance type but don’t sacrifice the right coverage to save money on your premiums. Ultimately, you want the best policy to protect your investment property business. Remember, your insurance is a tax-deductible business expense, which also helps reduce the effective cost of choosing the right coverage.
Want to know further?
Take a deep dive into how insurance companies record the premiums that you pay. Check out Earned Premium.
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