How Much Does Landlord Insurance Cost?

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Highlights

• The national average cost for landlord insurance coverage is around $2,100 per year.
• The exact cost for landlord insurance will depend on the size and value of the home, the materials used to construct the home, the types of tenants, the crime and environmental risks, the maximum coverage amount, and the types of add-on coverage chosen.
• There are three main types of landlord insurance that cover different risks and have different price points; landlords will want to review each type carefully to determine which one best meets their needs.

When a storm strikes a home, homeowners insurance picks up the cost of repairs to the structure and replacement of damaged items. Renters insurance covers the personal property of those in rental units in the event of a fire, wind damage, theft, and other covered events. But landlords face a different challenge: Their buildings are structures that can be damaged by the same events as any other structures, but when they’re damaged, landlords stand to lose income while potentially expensive repairs are done. Landlords also have additional concerns, such as the cost of traveling to the building for emergency repairs and the income shortfall should a tenant be unable to pay rent. Being a landlord entails significant financial risk. Since homeowners insurance only covers owner-occupied units, there’s a large gap in the landlord’s financial safety net. The best landlord insurance covers many of the same components as homeowners insurance and also fills that gap. But how much does landlord insurance cost? The simple answer is that the average cost of landlord insurance is $2,100 per year. The real answer is a little more complicated.

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What is landlord insurance, and what does landlord insurance cover?

Landlord insurance operates on the same principle as homeowners insurance: Should an event covered by the policy occur, homeowners or landlord insurance will cover the cost of repair and replacement of materials damaged in the event after the deductible has been paid. The range of covered events is somewhat larger than what homeowners insurance covers. Natural disasters (excluding floods), fires, electrical and gas malfunctions, vandalism, and tenants who choose to damage the property are all events that fall under the protection of the policy. In addition to covering the structure of the building, landlord coverage includes some personal items that the landlord stores on the property for business use: lawn mowers and snow blowers used exclusively for property maintenance, security cameras used to protect the property, and personally owned furnishings if units are rented already furnished. Similar to homeowners insurance, rental house insurance provides liability coverage. If someone is injured on the property and the landlord is found liable, landlord insurance will cover the cost of medical bills and any resulting legal expenses. In short, all property owners need landlord insurance to help protect their investment financially

Landlords are acutely aware of the tightrope that budgeting can be based on the assumption of prompt payments from their tenants. When tenants have to move out temporarily while repairs are made after a covered event, landlords can’t collect rent, which could be financially devastating. Landlord insurance provides lost rental income coverage during periods of time when tenants cannot inhabit the property.

Landlord insurance does not provide coverage for damage caused by flooding, but commercial flood insurance offered privately or by the National Flood Insurance Program (NFIP) can be added. Other add-on options exclusively for landlords include guaranteed income insurance, which will provide income to the landlord if a tenant doesn’t pay their rent; emergency coverage to compensate landlords for the time and effort of traveling to the units for emergency repairs; and construction expense coverage, which pays for construction that is necessary to bring buildings up to code after a repair. Landlords can also add workers compensation coverage if they have employees who work on their properties. These additional policy endorsements will cost extra, but they could potentially save landlords a significant sum. Also not covered? The tenants’ personal property. Landlords may want to consider requiring that their tenants carry their own renters insurance policies so that they’re protected in the event of a covered loss, and to prevent them from suing the landlord personally for their lost property. This is also in the best interest of the tenant, as it’s always recommended for tenants to get renters insurance to protect their personal property—and renters insurance costs are generally affordable.

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Homeowners Insurance vs. Landlord Insurance Costs

When comparing landlord insurance vs. homeowners insurance, prospective policyholders may wonder what rental property insurance costs when compared with regular homeowners insurance. Generally, landlord insurance costs about 25 percent more than traditional homeowners insurance. This may seem steep at first, but landlords will want to bear in mind that homeowners insurance covers the dwelling and contents, along with personal liability coverage for the residents and medical coverage for guests if they are injured while at the home. Landlord home insurance also includes coverage for income loss when rent can’t be paid, along with liability coverage for the landlord if a tenant or their guest brings an injury or liability claim against the landlord. Landlords who have been trying to get by with regular homeowners insurance will likely find that they don’t have coverage if they go to file a claim.

Factors in Calculating Landlord Insurance Cost

How much is landlord insurance? There are several considerations for landlords to keep in mind when calculating their insurance costs. These include factors related to the home itself (such as size, value, and type of property), the coverage chosen, the environmental and crime risks in the home’s location, the policy’s deductible and reimbursement method, and the policyholder’s claims history.

Home Size

Larger homes have more volume to repair or rebuild, so the base portion of a landlord policy will be determined by the size of the home and any additional structures. Larger homes will need to be insured for more, smaller homes for less, and the premiums will adjust accordingly.

Home Replacement Cost

The value of the home will have a direct effect on the cost of landlord insurance. When taking out a policy, landlords will want to make sure they have enough dwelling coverage to help pay to rebuild the home if it’s destroyed by a covered event. Put simply, a $150,000 home will cost less to insure than a $500,000 home.

Home Age and Construction Materials

Older homes are more complex to repair, especially because parts may be hard to come by and because repairs may require older homes to be brought up to current code, which adds to the expenses. They may also be at greater fire risk, with walls full of dry, aging wood and insulation and aged electrical systems. As a result, older homes cost more to insure.

Property Type

The type of property a landlord owns can affect the cost of landlord insurance. A single-family home will likely cost less to insure than a multifamily property with four or five units. Property owners will want to get landlord insurance quotes from several insurance providers for their specific property to determine which offers the best coverage at the best price for their budget.

Coverage Type

A landlord can choose from several different types of coverage when it comes to insuring their rental property. At the very least, they’ll want to have dwelling, personal property, and liability coverage. Additionally, they may want to opt for other structures coverage and loss of rental income coverage. The more types of coverage a policyholder has, the higher the cost will likely be. Each type of coverage is discussed in more detail in a section below.

Coverage Amount and Limits

A landlord’s insurance agent will help them settle on the maximum amount of coverage they need per event or annually. Increasing the maximums may protect landlords more effectively but will drive up the rate. In general, a landlord will want to make sure they have sufficient coverage to rebuild the home if it’s damaged or destroyed, and that they have enough liability coverage to protect them financially if they face legal trouble from tenants.

Add-On Coverage

Coverage that a landlord chooses to add, such as guaranteed income, flood, and emergency coverage, will drive up the overall insurance cost. The exact cost will depend on the type of coverage a landlord wants to add. For example, flood or earthquake coverage is likely to cost a landlord more than heating or air conditioning loss reimbursement coverage because flood and earthquake claims tend to be much more expensive than other types of claims.

Deductible

An insurance deductible is the portion of a claim the policyholder is responsible for. For example, if a landlord’s deductible is $1,000 and they file an insurance claim for $10,000, the policyholder will pay $1,000 and the insurance company will pay $9,000. Deductibles can range from several hundred to several thousand dollars, and the deductible amount can affect the insurance premiums. In general, a lower deductible will translate to higher insurance premiums, and vice versa.

Tenancy

Long-term tenants on year-long leases suggest stability and a clientele that is likely to continue paying rent and care for the property as if it were their own. A series of short-term monthly leases suggests that tenants are less invested in the property and more likely to cause damage, resulting in higher premiums.

Crime Risk

The crime rate in the area where the building is located can affect the cost of landlord insurance. If crime is low, home values are steady, and the school districts and neighborhoods are well regarded, the rate will be lower. High-crime areas with lots of vandalism or break-ins are perceived as higher risk, and therefore cost more to insure.

Environmental Risk

Insurers don’t like losing money, and areas that are likely to be hit by tornadoes or hurricanes are a huge threat to the profit margin. Large-scale disasters damage hundreds or thousands of properties and cost insurance companies a fortune. As a result, the premiums for insurance policies in these areas will likely be higher than in lower-risk areas.

Claims History

When pricing a policy, an insurance company will take the policyholder’s claims history into account. If the policyholder has made numerous claims on previous insurance policies, it can be a red flag for insurers—this is because claims cost insurance companies money, and they may raise a policyholder’s premium if they notice an active claims history. On the other hand, a policyholder with few claims on their record is seen as less risky and is more likely to be offered a lower premium.

Reimbursement Method

Upon paying out an approved claim, an insurance company will reimburse policyholders in one of two ways: using the item’s depreciated value (known as actual cash value coverage) or its full replacement cost at today’s prices.

• Actual cash value coverage: This reimbursement method covers the item at its current value, taking depreciation into account. For example, if the landlord has a 5-year-old riding lawn mower on their property that initially cost $2,000 and is currently valued at $800, the insurer will pay the lawn mower’s current value (minus the deductible) and the policyholder may need to settle for a lower-cost replacement or pay out of pocket to replace it with a similar model. Some examples of perils that a riding lawn mower might be covered against include vandalism, theft, fire, and damage caused by certain weather events
• Replacement cost coverage: This reimbursement method will cover the structure or property at its replacement value, not taking depreciation into account. Using the lawn mower example above, the insurer would pay out the amount it would cost to replace the lawn mower with a similar model (less the deductible) using today’s prices.

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Types of Landlord Insurance Coverage

Landlord insurance can provide financial protection for property owners in several ways. The main type of coverage is for the structure of the home itself, in addition to liability coverage, and medical payments to others, loss of income coverage, coverage for personal property (such as appliances and lawn care equipment that are on-site, and other structures coverage.

Dwelling Coverage

The dwelling coverage portion of a landlord insurance policy covers the structure of the home. Landlord dwelling insurance comes in three degrees, or types, and each covers certain events in different ways.

• DP-1 is the most basic form of coverage available, and it’s also the least expensive. These are named-risk policies—the policy names specifically the events that are covered, and it’s a relatively limited list. The covered perils commonly include fire and lightning, explosions, wind and hail damage, riots and civil disturbances, smoke damage, and vandalism. Since these policies are limited to covering only the perils listed, landlords will want to check the policy carefully before signing so they’re clear on what’s included. Most often, DP-1 policies pay out actual cash value, though some may offer an option to upgrade to replacement cost coverage.
• DP-2 policies are also named-risk policies, but they include more perils than DP-1 policies. Common inclusions are the perils listed in DP-1 policies, plus things like burglary damage, snow and ice damage, water damage from burst pipes or appliances, frozen pipes, electrical damage, collapses, and cracking or bulging of walls and foundations. DP-2 policies are also likely to include loss of rental income coverage; however, they may not cover damages if the unit has been vacant for a long period of time, because vacancy suggests an absence of routine maintenance. DP-2 policies usually use replacement cost to pay out claims.
• DP-3 is the most comprehensive landlord insurance policy available. Instead of covering only the perils that are named, DP-3 coverage includes all perils except for the exclusions specifically listed. Common exclusions are losses due to earthquakes, flood damage, neglect, war, intentional action, and, in some cases, mold. Generally regarded as the best protection from loss for landlords, DP-3 policies usually use replacement cost for claims.

Other Structures Coverage

While dwelling coverage applies to the main structure of the home, other structures coverage applies to any unattached structures, such as sheds, fences, and detached garages. If any of these structures is damaged by a covered event, the policyholder can make a claim to help cover repairs, less the deductible. Landlords may want to consider paying for repairs out of pocket if the deductible is close to the amount of the claim, since filing a claim could result in a premium increase.

Personal Property Coverage

Although landlords likely don’t have much personal property stored in their rental property, they may have items such as security equipment or landscaping equipment. Personal property coverage can help pay for damage to these items caused by a covered event. However, a landlord’s personal property coverage won’t apply to the tenant’s items—for these to be covered, the tenant will need to have a renters insurance policy. Landlords may want to consider requiring their tenants to carry renters insurance for the duration of their lease.

Loss of Income Coverage

When it comes to landlord insurance, loss of income coverage is designed to help landlords replace any lost income if the home is uninhabitable due to a covered event, causing the tenants to need to move out. For example, if a fire in the home causes substantial damage to the home, the tenants would need to relocate while the repairs are completed, and the landlord would lose out on this income. Having loss of income coverage can help landlords stay afloat in this instance.

Liability Coverage

Landlord liability insurance can help protect policyholders if they are found legally liable for causing property damage or injury to a third party. For example, liability insurance may come into play if a large tree limb falls on the tenant’s car during a storm and causes damage. Unlike other types of coverage, liability coverage doesn’t require the policyholder to pay a deductible.

Medical Payments to Others

Medical payments to others can cover some medical bills if a tenant or a guest is injured on the property, regardless of fault—for example, if they fall down a set of stairs by accident and break a leg. Like with liability insurance, medical payments to others coverage doesn’t require the policyholder to pay a deductible.

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How to Save Money on Landlord Insurance Cost

Depending on how many rental units you need to insure, the cost of landlord insurance can be significant. However, it’s an important safeguard of your investment and livelihood in case of disaster. This means you’ll want to seek out as many ways as possible to save on your premiums. There are several cost-saving options to consider.

• Reduce risk. Install security features such as smoke and carbon monoxide detectors, sprinkler systems, and security systems, and consider closing off fireplaces. These steps lower the likelihood that a large claim will be filed and may qualify you for a discount.
• Avoid high-risk features. Home features such as pools and hot tubs are considered high risk and can increase insurance premiums.
• Bundle your insurance policies. If you have homeowners insurance on your primary residence and auto insurance through the same company, you might get a significant discount on each policy if you add landlord coverage to your existing accounts.
• Take advantage of discounts. Professional associations, alumni groups, credit unions—many of these organizations provide discounts on financial services. It never hurts to ask.
• Consider raising your deductible. It will sting a little if you have to file a claim, but it will cost less money up front in the form of premiums and may save significant amounts over time.

Questions to Ask About Landlord Insurance 

Insurance policies are complex documents, so it’s important for landlords to make sure they know what they’re buying. Because so much depends on whether or not a catastrophic event is covered, it’s particularly important that the landlord be clear on what is covered or excluded so that they’re not taken by surprise after an event. Landlords will want to ask their agent questions such as the ones below and note the answers so they can compare policies more easily.

• What events are included? Which events are specifically excluded?
• Do you pay out actual cash value or replacement value?
• Are the additional structures or outbuildings on the property covered?
• If damage occurs as a result of the intentional behavior of my tenant, is that covered?
• What kind of water damage is covered (or not covered)? Burst pipes? Sewer backup? Flooding? Tenant left the water running?
• What renovations could I do to reduce the cost of coverage? What safety equipment could I add, and how much would it save on my premiums?

FAQs

A landlord has made a significant financial investment in their business. They’ve also invested time: soliciting good tenants, making upgrades and repairs, and doing the various tasks a good landlord handles, all of which count toward their investment. In other words, they’ve invested too much to lose their property to a disaster. Landlord insurance can offer protection—but there are so many angles for landlords to consider as they begin investigating their options. Below are some of the questions most often asked, along with their answers, to help landlords get started.

Q. How much should I budget for landlord insurance?

The national average landlord insurance cost is $2,100 per year, so that’s a good place to start. But so much depends on how many units you have, their size and condition, and other elements. Until you’ve identified a specific policy, you can consult a landlord insurance cost calculator online to help get a better estimate of what to expect so you can begin budgeting.

Q. Why is my landlord insurance so expensive?

There are several reasons. First, landlord insurance provides a much wider range of protection than homeowners or renters insurance. It covers the structure and possibly some contents of the building, along with other structures on the property. But it also covers your personal property that is stored on the premises if it’s used for maintenance, landlord liability insurance cost, loss of rental income, construction costs, extra costs to bring the building up to code after a repair, and a host of other potential losses. The payout stands to be much larger with a landlord insurance policy than with other kinds of insurance, simply because there’s more damage to be done.

In addition, statistics are working against you. More claims are filed on rental properties every year than on resident-owned property. Why? Renters generally do not feel a sense of ownership of their units and are less likely to perform basic maintenance, and they may let small problems grow into large ones. Rental properties are at greater risk of vandalism. And the claims that are filed for rental properties tend to be higher-value claims. Insurance companies are businesses that exist to turn a profit, so higher-risk clients will be charged higher-risk rates, and unfortunately, landlord insurance falls into that category.

Q. Is landlord insurance tax deductible?

You’re a business owner. Landlord building insurance is an expense directly related to the business, so yes—you can deduct the cost of premiums from your taxes.

Q. Does landlord insurance cover windows?

It may. If the window was intentionally broken, the tenant’s liability insurance may cover the repair. And if the window broke as a result of neglected maintenance (a waterlogged wood frame swelled until the pressure cracked the glass), then you may be out of luck. But accidental breakage or breakage during a storm will normally be covered after the deductible is met.

Q. How can I reduce my landlord insurance?

Ask for discounts—really! Check with organizations to which you belong, ask potential insurers about multiple property policy discounts or multiple policy discounts, and see if you can bundle your own homeowners insurance and auto insurance with your landlord insurance. Bump up the safety features in your properties and bump up your deductible—both will often lower the premium cost.

Sources: Valuepenguin