Landlord Insurance vs. Homeowners Insurance: What’s the Difference, and Which One Do You Need?

While the concepts are similar, landlord insurance and homeowners insurance protect different elements of the costs associated with property damage.

By Meghan Wentland | Updated Sep 23, 2022 10:54 AM

Landlord Insurance vs Homeowners Insurance

Photo: depositphotos.com

Many people know that homeowners insurance provides critical financial protection for property they own by protecting against damage from disasters such as weather, fire, and vandalism. For property owners who rent out part or all of their property, however, homeowners insurance isn’t enough; the limits to homeowners insurance coverage mean that if a disaster should befall a property that is rented out, the landlord could be left with significant financial responsibility and no coverage. Those property owners need rental property insurance, which is marketed as landlord insurance or investment property insurance. Landlord insurance is similar to homeowners insurance for rental properties, but with a few significant differences. These policies cover the structure of the building and associated outbuildings and can provide loss of rent coverage if the property is uninhabitable due to a covered peril. It can also provide liability coverage for the landlord if tenants are injured on the property and the landlord is liable. Landlords who wonder “Do I need landlord insurance?” should know that the answer is probably yes, as paying out of pocket for repairs after a disaster can undermine the financial status of their business and livelihood. Landlord insurance, however, isn’t geared toward protecting the contents of the building, which is why it’s important to understand which kind of insurance is appropriate for your situation.

1. Homeowners insurance covers your primary residence, while landlord insurance covers rental properties.

Homeowners insurance is intended to protect the investment of homeowners who live in their homes (and, to a certain extent, their lenders). As a result, the coverage is extensive: Homeowners insurance policies are contracts of exclusion, which means they’ll cover almost anything that the policy does not specifically exclude. Covered events, or perils, typically include fires; damage from wind, snow, rain, and lightning strikes; explosions; break-ins and vandalism; accidents; and water damage that results from burst pipes or other sudden and accidental events. Homeowners insurance will not cover flood damage or damage caused by earthquakes, and it generally does not cover any property that is not part of the policyholder’s residence.

Landlord insurance, on the other hand, does not require that the policyholder be a resident of the covered property (the landlord may live on the premises as well but would then need a separate policy to cover their personal property). A landlord may own multiple properties and cover each of them with a separate policy. Landlord insurance is specifically tailored to the needs of rental property owners, so it’s focused on the elements of the property that the landlord owns and would be responsible for repairing or replacing after a covered event. The covered events and exclusions are similar to those of a homeowners insurance policy, with the addition of coverage for repairing accidental damage caused by tenants.

Landlord Insurance vs Homeowners Insurance

Photo: depositphotos.com

2. Both types of insurance typically include coverage for the home’s structure as well as detached structures like sheds.

Structural coverage is central to both types of insurance. If a branch falls on the building during a covered event such as a storm, both homeowners and landlord insurance will likely cover the cost of repairing the damage. Windows that break during a hailstorm or walls destroyed by fire are also usually covered. This protects the property owner’s investment; if a structure is badly damaged or destroyed by fire, the structural components will need to be rebuilt and replaced, which can be a catastrophic expense for the owner. This is why most lenders require homeowners to maintain a homeowners insurance policy and individuals who purchase rental property to maintain landlord insurance.

3. Homeowners insurance often includes personal property coverage, while landlord insurance does not. 

Homeowners own their homes and everything in them. Many people underestimate the cost of replacing damaged items—they may think that because furniture was purchased inexpensively years ago and that their belongings aren’t luxurious, there’s no real threat if the items are damaged or destroyed. But this is unrealistic; the items in most people’s homes were purchased gradually, sometimes using money that had been saved up for a long period of time. Repurchasing all items in a home after a disaster would be extraordinarily costly, so homeowners insurance provides coverage to reimburse part or all of the cost of refurnishing the home after an incident.

Landlords do not own the personal property that is inside the units they rent. Paying for coverage for those personal items would be complicated and quite expensive. Therefore, landlord insurance doesn’t include personal property in its coverage. Instead, the coverage is limited to the structure, which includes the building itself, along with wallboard, permanently installed carpeting and flooring, and cabinetry. The personal belongings of the tenants are the tenants’ own responsibility, which is why many landlords require that their tenants carry renters insurance to avoid confusion about the limits of the landlord’s liability. However, if the landlord has chosen to furnish the unit with items that they personally own or to keep landscaping equipment in the garage that’s intended for use at the property, those items can be added to a landlord policy for an extra fee, as can the major appliances in the unit.

4. Homeowners insurance tends to include loss-of-use coverage, while landlords can opt for loss-of-rent coverage.

Both homeowners insurance and landlord insurance typically provide coverage for the time that a property is unlivable due to repairs or rebuilding, but the type of coverage differs slightly. Homeowners insurance often offers loss-of-use coverage, which pays for temporary living expenses such as lodging and meals out if extensive damage caused by a covered peril requires the homeowner to move out while it’s repaired. Landlord insurance coverage isn’t geared toward protecting the residents of a building—its design is to protect the landlord—so rather than paying for living expenses, landlord insurance will generally cover lost rent if extensive damage or repairs require the renter to move out for a period of time. This helps protect the landlord from being unable to make their own mortgage or utility payments during a time with reduced income. Also, some landlord policies will cover rent when tenants simply don’t pay. Loss-of-use and loss-of-rent coverage varies depending on the insurance company and policy details. Sometimes this is considered add-on coverage that comes at an extra cost, and other times it’s included in a basic policy. Policyholders can check to see what coverage is included in the best homeowners insurance policies or landlord insurance policies by reading the fine print and asking their insurance agent plenty of questions about their coverage to ensure they have chosen the best insurer and policy for their needs.

Landlord Insurance vs Homeowners Insurance

Photo: depositphotos.com

5. Both types of insurance can include coverage for personal liability and medical payments for guests who are injured on the property.

The mail carrier slips on ice and breaks a leg—and sues for the cost of their medical treatment. A friend is helping out in the kitchen and burns themself badly on the stove and needs to go to the ER. The garbage can tumbles away during a windstorm and dents the neighbor’s car. All of these expenses fall under the category of personal liability, and they are usually included in both homeowners and landlord insurance policies.

This type of coverage protects the policyholder from charges for medical expenses for injuries that happen to guests while on the policyholder’s property or the repair of damages. Personal liability coverage typically has a limit, and the policyholder may choose to add or upgrade the coverage limits based on the risk a property presents or the likelihood of accidents. For example, a residence with a swimming pool or trampoline in the yard must be aware that injuries are more common when using them, so additional coverage might be wise.

6. Landlord insurance doesn’t cover the tenant’s property, which is where renters insurance comes in.

While homeowners insurance covers personal property, landlord insurance does not, which leaves tenants’ personal property at risk should a loss occur. The best renters insurance, or rental house insurance, is designed to fill that gap. It does not cover the structure of the building, but it does cover the tenants’ personal items, living expenses should they have to temporarily move out during repairs, and liability coverage. Many landlords require that their tenants carry renters insurance, so it’s common to see that requirement written into the lease. This clarifies who is responsible for what expenses after a covered event—the landlord insurance will cover the structure and the property, and the renters insurance will cover the tenants’ personal belongings and temporary living expenses. Even when the lease does not require renters to carry insurance, it’s a good idea to do so; like homeowners, most renters vastly underestimate the value of their personal belongings and would find themselves hard-pressed to afford to replace everything after a fire or damaging storm.