Rental Property Insurance: Who Needs it and What Does it Cover?

Rental property insurance, also called landlord insurance, covers the unique risks taken in renting out your home or condo for long periods of time. Its coverage includes property damage, liability costs, and loss of rental income for landlords renting their property. Whether you are renting out your house, a vacation home, or an investment property, rental property insurance is an important safeguard against the financial risk associated with tenants living on your property.

What does rental property insurance cover?

Rental property insurance coverage will vary, but policies will generally cover the dwelling or structure of your property, contents of the property belonging to the landlord, liability coverage, and loss of rental income. Much of its coverage is similar to that of homeowners insurance, though it has unique features that homeowners insurance lacks and that account for the added risk of having tenants on your property.

Dwelling coverage

Just like homeowners insurance, rental property insurance covers physical damage to your dwelling, meaning damage to the structure of the home or apartment itself. For example, it will cover damage to your walls and your roof but not the personal items of your tenant. Coverage will only extend to damage caused by a covered peril, and you should make sure to understand which perils, such as fire or lightning damage, are covered by your particular policy.

Coverage for the landlord's personal property

Unlike renters insurance, rental property insurance does not cover the personal property of tenants inhabiting the property. However, rental property insurance will often include coverage for items left on-site by the landlord. For example, if you left a lawnmower at your rental house and it is damaged by a fire — and fire is a covered peril in your policy — damage to the machine would be covered by your rental property insurance. On the other hand, if your tenant bought a personal air conditioning unit that is damaged by the same fire, the AC unit and the rest of the tenant's property would not be covered by your rental property insurance.

When shopping for rental property insurance, you should check whether personal property coverage is included in the insurer's standard policy and if it is, to what extent it will cover your property. Sometimes this coverage is only offered as an optional add-on, called an endorsement. In other cases, coverage will function as appliance insurance for your rental property. This means that only damage to property that is used to service the apartment, such as a washing machine, maybe covered, whereas damage to a television set will not be covered.

Liability coverage

Liability coverage will protect you from the legal and medical costs associated with someone being injured on your rental property. If your tenant or a visitor is injured on your property and you are deemed responsible for the injury, rental property insurance can cover these costs up to your policy limits. If you're someone for whom the limits of this coverage are not sufficient to cover potential liabilities and you wish to increase your coverage, you could also purchase umbrella insurance for your rental property.

Loss-of-rent coverage

This coverage provides protection against lost rent payments if the property you rent is uninhabitable due to a covered peril. You can think of it as a form of rent guarantee insurance. For example, if fires are covered under your rental property insurance and fire damage makes the apartment uninhabitable, rental income protection covers you for the rental payments your tenants are no longer obligated to pay. Coverage will generally extend up to a defined period of time, such as 12 months. Loss of rental income does not always come standard with rental property insurance, so you should check your policy before purchasing it if this type of coverage is important to you.

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Jason Gwerder
Thursday, 7 October 2021

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