Ultimate Guide to Landlord Insurance in 2022

If you’re a landlord (or soon-to-be one), you’ve probably heard the term “landlord insurance” tossed around a few times by now. But the world of property insurance is vast and can be confusing. If you talk to the wrong person, you might be left with more questions than answers.

While it’s not a requirement or prerequisite for a landlord, landlord insurance is extremely important and highly recommended. It can save you not only tens of thousands of dollars if it ever comes into use, but also the stress of that financial burden in the face of an emergency. So if you’re looking to protect your property, you’ve come to the right place. Here’s everything you need to know about landlord insurance and finding the best policy for you.

What is Landlord Insurance?

Let’s begin with a quick breakdown. Landlord insurance is insurance that covers a dwelling that is rented out for periods of 30 days or more, meaning it’s not for short-term rental options like Airbnb.

In contrast to other kinds of property insurance, which we’ll break down below, landlord insurance covers only the structure itself, the home that someone is renting out. It provides varying levels of reimbursement and other benefits in the case of damage to that structure or dwelling. It also provides liability protection, meaning it helps protect the landlord and cover fees if the landlord is sued for an issue that occurs within the dwelling.

Landlord Insurance vs. Renter’s Insurance vs. Homeowners Insurance

Differentiating between these three kinds of property insurance, whether you’re a renter, a landlord, or a homeowner, can be confusing. It’s important to have a general understanding of each to ensure you get the right kind.

Landlord Insurance

As we mentioned above (and as the name suggests), landlord insurance is for the landlord. That means it primarily covers what the landlord cares about protecting: the dwelling they own and are renting out to others, rather than the items inside that dwelling that belong to the renters.

If you’re a landlord and one of your properties burns down in a fire, landlord insurance will cover the costs of the property itself that was damaged – and potentially more, depending on which kind you get. We’ll break down the kinds of landlord insurance as you read on.

Renter’s Insurance

In contrast, renter’s insurance doesn’t cover the physical dwelling a tenant is living in, but rather the contents that they’ve brought and own themselves. Renter’s insurance is for renters, not for landlords. So if you’re renting an apartment and there’s a fire, renter’s insurance would cover the contents of your rented home that you own – furniture, technology, appliances, and more. It may even cover loss of use, meaning you would receive help in relocating or finding somewhere else to stay while the rental property is fixed. But it doesn’t cover the building, house, or apartment itself, because as a renter, you don’t own the property, so you’re not paying for the dwelling when it’s damaged, only the contents.

Homeowners Insurance

Homeowners insurance is almost like a combination of landlord insurance and renter’s insurance because you not only want to protect the physical structure of the home you live in, but also the contents you’ve brought to it. You own it all, so you want to protect it all. It’s most similar to the most comprehensive type of landlord insurance plan, DP-3 which we’ll touch on just ahead.

Types of Landlord Insurance

There are numerous different companies offering landlord insurance, and most companies offer different tiers with different levels of coverage. Generally, landlord insurance falls into three tiers. We’ve broken down those three tiers below.

Dwelling Policy 1 (DP-1)

DP-1 is the cheapest landlord insurance plan, but it’s also extremely limited. DP-1 landlord insurance has 10 different kinds of damage it covers. If damage comes from causes outside of that specific list, it won’t be covered under DP-1. but the most important distinction of DP-1 landlord insurance is that it only covers the actual cash value (ACV) of the damage. It will pay out the value of the property that was damaged, but it won’t provide any funds for repairs or replacements.

The 10 kinds of damage DP-1 landlord insurance covers are; fire and lightning, windstorm and hail, riot and civil commotion, internal explosion and external explosion, smoke, vehicle, aircraft, volcanic explosion, and vandalism and malicious mischief.

Dwelling Policy 2 (DP-2)

The main difference between DP-2 landlord insurance and DP-1 landlord insurance is that DP-2 pays out the replacement cost value (RCV) rather than just the ACV. This means that when one of the listed covered causes damage to a landlord’s property, DP-2 won’t just pay the cost of that property, but will also pay to replace it or restore it to its original condition. This is a key difference between the two plans, as that restoration can cost tens of thousands of dollars.

Another difference between DP-2 and DP-1 landlord insurance is that a DP-2 plan may cover the loss of income you receive as a landlord if damage to your property causes the tenants to move out.

DP-2 also has an extended list of types of damage it covers. In addition to the categories on the DP-1 list, DP-2 includes weight of ice and snow, burglary damage, falling objects, glass breakage, cracking, burning, bulging, accidental discharge or overflow of water or steam, freezing of pipes, electrical damage, tearing apart, and collapse.

Dwelling Policy 3 (DP-3)

DP-3 landlord insurance plans are the most common, and for good reason. These plans are by far the most comprehensive and don’t adhere to a specific list of damage categories when it comes to what a DP-3 plan will and will not cover. Rather, DP-3 policies are “all-risk.” If there’s damage to your property from any kind of peril, a DP-3 plan will cover it and pay out the RCV, not the ACV. The only exceptions come from a short list of excluded damages, which include things like neglect and mold. So rather than only covering a specific list of damages, DP-3 plans cover everything except a specific list of damages.

Landlord Insurance: How Does it Work?

Landlord insurance works similarly to health insurance or car insurance. Prices depend on the policy you choose, but in general, it involves a premium and a deductible. You pay a premium each month, no matter what; this will always be the same amount unless you change your policy.

In the case that your property is damaged and you need to use your policy, you pay a set deductible that’s agreed upon at the onset of your policy. A deductible is an amount you, the insured, pay before the insurance provider starts paying expenses. After you pay your deductible, the insurance provider covers the rest (contingent upon what your policy has determined they will cover).

Typically, a plan with higher monthly premiums will have a lower deductible, and a plan with lower monthly premiums will have a higher deductible.

Conclusion

Whether you’re a landlord, a renter, a homeowner, or anything else, getting the right insurance policy can be confusing and intimidating, but there are plenty of resources and guides available to help you out. Insurance may seem like a big expense for an emergency that will hopefully never happen, but in the case that peril may occur, an insurance plan could change your life by helping you get back on your feet. So consider the cost of monthly premiums your payment for peace of mind. Hopefully, this guide helps you understand the basics of landlord insurance!