Is it worth getting insurance on rental property?

Nikka Sulton

Is It Worth Getting Insurance On Rental Property?

Is It Worth Getting Insurance On Rental Property? Rental property insurance encompasses various coverage components. These typically include protection for the physical structure of the property, coverage for the landlord’s property contents, liability insurance, and safeguards against income loss due to rental disruptions.

Both landlord insurance and homeowners insurance offer similar coverage, but landlord insurance is tailored to address the unique risks associated with having tenants on your property. This specialized coverage takes into account the potential challenges and liabilities that landlords may encounter when renting out their properties.

What Is Rental Property Insurance?

Rental property insurance, commonly referred to as landlord insurance, is designed to safeguard against potential risks when renting out your property, whether it’s a house, apartment, condo, or other dwelling. This type of insurance offers financial protection in case of property damage or injuries occurring on your rental premises.

The coverage provided by rental property insurance can also extend to protect your rental income if your property becomes uninhabitable due to issues specified in your policy. If you’re thinking about becoming a landlord, it’s crucial to examine whether your current homeowners insurance offers any coverage for your rental activities.

What Does Rental Property Insurance Cover?

Rental property insurance typically includes the following types of coverage:

1. Dwelling Coverage

This part of the policy protects against physical damage to the building resulting from incidents specified in your policy, such as windstorms, fires, or hail.

2. Liability Coverage

Liability coverage provides financial protection in the event you are deemed legally responsible for someone else’s medical expenses or property damage linked to your rental property. It also covers your legal defense costs in case of a lawsuit, up to the coverage limits.

3. Personal Property

If you own items at the rental property that tenants can use, such as appliances or lawnmowers, some rental property insurance policies offer coverage for these items. This coverage may be optional with certain insurance providers.

4. Loss of Rental Income

In situations where you cannot rent out your property due to damage caused by incidents listed in your policy, such as a fire, rental property insurance may cover the lost rental income. Some insurance companies also provide this as an optional coverage.

Rental Property Insurance Optional Coverage

Rental property insurance typically doesn’t cover certain situations, but you may have the option to add them to your landlord insurance policy:

1. Vandalism

Intentional damage or vandalism to your property is usually not covered by standard property insurance. Some insurers offer vandalism coverage as an optional add-on for purchase.

2. Burglary

Rental property insurance may cover damage caused during a break-in, but it typically won’t cover stolen items. You might have the option to add coverage for maintenance items like lawnmowers or appliances at an extra cost.

3. Property Under Construction

If your property is undergoing construction, you may be able to obtain special coverage for the structure until it’s ready for tenants.

4. Building Codes

When making repairs to a property, you might need to update it to comply with new building codes. In some cases, you can purchase coverage to reimburse you for these expenses.

5. Personal Injury

This coverage can be beneficial if you are sued for wrongful eviction.

Types of rental property insurance policies:

When you’re in the market for rental property insurance, you might come across different policy types referred to as “forms.” Similar to homeowners insurance, these various rental property insurance forms offer different levels of coverage. Below are general descriptions of each type of form to give you an overview of what they entail.

DP-1: This is the most basic and affordable form of rental property insurance under the dwelling policy (DP) category. DP-1 policies typically cover specific named perils, meaning only the explicitly listed disasters are covered. Moreover, these policies often provide reimbursement based on the actual cash value, which means you’ll receive compensation for covered damage minus depreciation.

DP-2: DP-2 offers slightly broader coverage compared to DP-1. While it still operates on a named peril basis, DP-2 typically extends coverage to a wider range of perils. For example, it might include coverage for burglary damage, which DP-1 might not cover. DP-2 also improves on DP-1 by usually offering coverage on a replacement cost basis, meaning you’ll be reimbursed for damage at current market prices without accounting for depreciation.

DP-3: As the most comprehensive and costly form, DP-3 provides extensive coverage, protecting against nearly all perils except those explicitly excluded in the policy. Like DP-2, DP-3 policies provide coverage on a replacement cost basis, ensuring that damage is covered at current market prices without considering depreciation.

Do I Need Insurance on My Rental Property?

When it comes to insurance for short-term rentals, the need depends on how often you rent your primary residence.

If you occasionally rent out your primary residence, like for a few weekend getaways per year, your homeowners insurance might provide some coverage in case your home is damaged while you’re away. However, it’s crucial to check with your homeowners insurance company as policies vary. You might need to add an insurance rider for adequate coverage.

On the other hand, if you frequently rent out your primary residence, it’s generally considered a business activity and is typically not covered by homeowners insurance. In this situation, it’s advisable to explore home-sharing insurance.

For long-term rentals that span several months or even years, rental property insurance is usually necessary to safeguard against potential financial losses.

How Much Does Rental Property Insurance Cost?

According to the Insurance Information Institute, rental property insurance tends to be approximately 25% pricier than standard homeowners insurance.

A recent analysis by Forbes Advisor revealed that the average annual cost of homeowners insurance, providing $300,000 of dwelling coverage and $100,000 of liability coverage, is around $1,854. This puts rental property insurance at an estimated yearly cost of about $2,318.

As with any insurance, the most effective way to secure affordable rental property insurance is by conducting thorough comparisons. It’s advisable to obtain homeowners insurance quotes from various insurers before making your final choice.

The Bottom Line: Is Renters Insurance Worth it?

Renters insurance is a cost-effective way to protect your belongings and liability. It’s worth considering, even if you could cover losses. If you already have a car insurance policy or other insurance policy, you can save money by bundling it with renters insurance, making it even more affordable.

Comparing renters insurance quotes from two or three different insurance companies will help you find the best deal.