How Much Does Landlord Insurance Cost?
Rental property can provide solid income—until disaster strikes. Make sure you’re properly insured with landlords insurance to protect your financial investment.
- National Average: $1,288 per year
When a storm strikes your 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. 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 nationally is $1,288 per year. The real answer is a little more complicated.
What Is Landlord Insurance? What Does It Cover?
Landlord insurance operates on the same principle as homeowners insurance: Should an event covered by the policy occur, 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 snowblowers 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, landlord 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.
If you’re a landlord, you’re acutely aware of the tightrope that budgeting can be based on the assumption of prompt payments from your 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 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. You can also add workers compensation coverage if you have employees who work on your properties. These additional policy endorsements will cost extra, but they could potentially save landlords a significant sum. Also not covered? The tenants’ personal property. Consider requiring that your 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 you personally for their lost property.
Homeowners Insurance Cost vs. Landlord Insurance
What does rental property insurance cost when compared with regular homeowners insurance? Generally, landlord insurance costs about 15 percent more than traditional homeowners insurance. This may seem steep at first, but 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 your home. Landlord 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. If you’re a landlord who has been trying to get by with regular homeowners insurance, there’s a good chance you won’t have coverage if you have a claim. Depending on optional coverage that you add, the difference can stretch to as much as 25 percent more than the cost of homeowners insurance.
Factors in Calculating Landlord Insurance Cost
First, you’ll need to think about the number and type of units you own. Are you looking for rental house insurance? Insurance for a small apartment building? Coverage for a series of condominium units? The starting cost for your landlord insurance policy will depend on how many units you plan to insure. The payout style you choose will also affect your costs. Many policies offer actual cash value coverage, which means that after a disaster, you’d be compensated based on the cost to rebuild or repair at today’s costs minus depreciation. Replacement cost coverage will cost more at the outset but will recompense you the full current cost of repair and rebuilding so you can bring your building back to its previous condition without paying more out of pocket.
Landlord insurance costs vary regionally. Why? The cost of materials and labor to perform repairs varies based on where you live. Additionally, different regions face specific challenges that might result in claims: People who live in places where large-scale storm damage is likely will file more claims all at once, bumping up their premium rates. After regional differences, though, landlord insurance premiums are based on the size and age of the covered buildings, the risks based on the amenities and environment in the buildings, and the choices you make about coverage.
- Square footage of the home: 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.
- Value of the home: More expensive properties cost more to insure because they cost more to repair or replace.
- Age and materials of home construction: 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.
- 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.
- Coverage maximums: Your agent will help you settle on the maximum amount of coverage you need per event or annually. Increasing the maximums may protect you more effectively but will drive up your rate.
- Add-on coverage: Coverage that you choose to add, such as guaranteed income, flood, and emergency coverage, will drive up your overall cost.
Types of Landlord Insurance
Landlord insurance comes in three degrees, or types. These base policies are referred to as dwelling policies and are numbered. This makes it easier to decide what kind of policy you need and to break down the cost structures. The distinctions are based on the types of events covered.
DP-1 is the most basic form of coverage available, and it’s the least expensive. These policies are Named Risk insurance—the policy names specifically the events that are covered, and it’s a comparatively limited list. The covered perils commonly include fire and lightning, explosions, wind and hail damage, riots and civil disturbances, smoke damage, and vandalism—but because these policies are limited to the perils listed, check the policy carefully before signing so you’re clear on what’s included in yours. Most often, DP-1 policies pay out actual cash value, though some may offer an option to upgrade to replacement value.
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. Again, it’s critical to check your specific policy to see what is listed; anything not specifically included won’t be covered. In addition, DP-2 policies 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 pay out replacement cost.
This 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 pay out replacement cost.
How to Save Money on Landlord Insurance
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.
- 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.
- Eliminate high-risk features like pools and hot tubs
- 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.
- Consult an agent who sells commercial policies. They may have the inside info on which policies provide great coverage and service for less money.
- Where do you belong? 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 and may save significant amounts over time.
Questions to Ask About Landlord Insurance
Insurance policies are complex documents, so it’s important to make sure you know what you’re buying. Because so much depends on whether or not a catastrophic event is covered, it’s particularly important that you be clear on what is covered or excluded so that you’re not taken by surprise after an event. Ask your agent questions—lots of them—and note the answers so you 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?
As a landlord, you’ve made a significant financial investment in your business. You’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 your investment. In other words, you’ve invested too much to lose your property to a disaster. Landlord insurance will protect you. But there are so many angles to consider as you begin investigating your options. These are some of the questions most often asked, along with their answers, to help you get started.
Q. How much should I budget for landlord insurance?
The national average landlord insurance cost is $1,288 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.