Do i need both homeowners insurance and landlord insurance

Homeowners Insurance vs. Landlord Insurance for a Rental Property: Which Do You Need?

Posted May 07, 2022

No matter what you use your rental property for, you need the right coverage to keep you and your property protected from the unexpected. Depending on your situation, you may need to get either a homeowners or landlord insurance policy.

An Overview of Homeowners Insurance and Landlord Insurance

Homeowners and landlord insurance policies can vary from insurer to insurer, but both plans will most likely include these coverage options:

• Dwelling coverage — Covers the home’s structure in the event of a fire, storm, or another covered peril.
• Other structures coverage — Covers structures on your property that are detached from your home, such as sheds and detached garages.

Homeowners insurance might be a better option if the property is your primary residence and you only plan to rent it out occasionally. A local agent can help you figure out what scenarios may or may not be covered by homeowners insurance while you're temporarily renting out your property.

Landlord insurance, on the other hand, is essential if you plan on renting out your single-family home, duplex, or investment property on an ongoing basis. It offers specialized protection to ensure your rental property is safeguarded from various covered losses.

Talk with a local agent today to see which insurance plan is best for your situation.

Key Differences Between Homeowners Insurance and Landlord Insurance

Homeowners and landlord insurance are similar in certain ways, but they also have their differences. Here are some of the key differences between these two types of insurance plans.

Personal Property Coverage

• Homeowners insurance — Homeowners insurance typically covers personal belongings such as furniture, clothes, and electronics by up to 50% of your home’s insured value.
• Landlord insurance — Landlord insurance may cover household items used to service your rental property like refrigerators, washers, dryers, etc. It typically doesn’t cover personal items you may have left behind at your rental property. For example, if you own a beach house and left your surfboard there, landlord insurance might not cover your surfboard if it gets damaged or stolen.

Liability Coverage

• Homeowners insurance — Homeowners insurance helps protect you financially if you’re found liable for bodily injuries or property damage, regardless of where the covered incident happened.
• Landlord insurance — Landlord insurance only covers accidents on the rented premises. For example, if a tenant suffers an injury due to faulty stairs, landlord insurance may help pay for subsequent medical or legal expenses.

Additional Living Expenses and Fair Rent Value

• Homeowners insurance — Homeowners insurance offers additional living expenses. If your home gets damaged in a covered loss and is deemed uninhabitable, this coverage may help provide reimbursement for hotel stays, meals, other costs incurred while your home is being repaired.
• Landlord insurance — Landlord insurance provides fair rent value. This coverage helps reimburse you for lost rental income while your rental property is being repaired due to a covered loss.

Protecting Tenants with Renters Insurance

Neither homeowners nor landlord insurance includes coverage for your tenants' belongings. If you decide to rent out your property to another person, we highly recommend including renters insurance as a condition in the leasing agreement.

Renters insurance may help cover your tenants’ belongings in the event of a fire, theft, or other covered loss. This type of insurance can also provide them with personal liability protection, which helps pay costs associated with bodily injury or property damage. For example, if your tenant's guest slips and suffers a back injury on the property, their renters insurance can help cover any resulting medical or legal expenses.

Renting your property to another person is a great way to create some additional income. However, it comes with many responsibilities, including finding the right insurance policy for your needs. Consider partnering with Mercury, where we provide reliable local homeowners protection at an affordable rate.

Contact us today and get a fast, free quote for homeowners or landlord insurance!

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Whether you invest in a rental property full-time or just rent out your extra bedroom on occasion, you need more protection than a standard homeowners policy can provide. To shield yourself from potentially catastrophic losses, look into supplemental coverage for your homeowner's policy or a separate landlord policy. Here's what you need to know about the differences between homeowners insurance vs. landlord insurance.

KEY TAKEAWAYS

• The average annual cost of homeowners insurance is $2,285, whereas, landlord policies usually cost approximately 25 percent more than a typical homeowners policy.
• Landlord insurance provide liability coverage, personal property coverage and dwelling coverage.
• If you are renting out a spare room in your home to someone for long time, your homeowners' policy may provide liability coverage and fair rental value.
• Contact your insurance agent or broker if you plan to replace your homeowners insurance policy with landlord insurance.

IN THIS ARTICLE

• What is the difference between homeowners insurance and landlord insurance?
• Landlord insurance vs. homeowners insurance cost
• What does landlord insurance cover?
• Landlord insurance vs. umbrella policy
• Common landlord insurance claims
• Homeowners vs. landlord insurance when renting out a room in your home
• Landlord insurance application information
• How to change homeowners insurance to landlord insurance
• How to save on home insurance vs landlord insurance
• Frequently asked questions about landlord insurance vs. homeowners insurance

What is the difference between homeowners insurance and landlord insurance?

The table below highlights differences and similarities between homeowners insurance vs. landlord insurance:

Based on Insurance.com research of rates from top insurers for nearly every ZIP code in the country, the average annual cost of homeowners insurance is $2,285. According to the Insurance Information Institute, landlord policies usually cost approximately 25 percent more than a typical homeowners policy to cover increased protections. Put another way, don’t count on finding ultra-cheap landlord insurance.

Although there are some key differences between homeowners and landlord insurance, several common factors impact landlord vs. homeowners cost and how much one will pay in premiums,” says Chris O’Rourke, vice president of property claims at Mercury Insurance in Brea, California. “The weather of the region in which the home or rental property is located or its proximity to forests or oceans can indicate a likelihood of risk, especially if the property is located in an area prone to natural disasters, including hurricanes, tornadoes, hail storms and wildfires.

O’Rourke notes that price may also differ based on your region’s cost-of-living, your credit history, the claims history of the property, and various characteristics of the home and property, including the home's size, year built, type of roof, plumbing or other construction features.

What does landlord insurance cover?

You can choose landlord coverage with the most basic protection, or you can insure against most kinds of losses. Ryan Scruggs at Farmers Insurance in Peoria, Illinois, explains that landlord insurance is comprised of three parts:

• 1.Dwelling coverage for the structure in case of fire, water, wind or hail damage, etc.
• 2.Personal property coverage reimburses you for damage to your property left on the premises for maintenance or tenant use, such as appliances, furniture, garden equipment and snow blowers.
• 3.Liability coverage for injuries occurring on the rental property for which you are responsible.

"In my opinion, liability is the most important coverage that can be offered on landlord policies," says Scruggs. He also recommends that landlords consider expanded rent loss coverage. "If your tenant is unable to live in the home due to a fire, sewer backup, mold, etc., this coverage can reimburse you for lost income during the period the tenant is not making rental payments."

Note that there are also three categories of landlord coverage: DP-1, DP-2 and DP-3.

• DP-1 is the bare minimum, providing fire, vandalism, wind, hail and other common perils.
• DP-2 is more comprehensive, adding special hazards named to the policy.
• DP-3 is the Cadillac policy, covering replacement-cost coverage for any perils not specifically excluded.

Monique Allan, a COUNTRY Financial representative in Mesa, Arizona, cautions that many landlord policies today have been stripped down to protect the carrier.

Water damage, vandalism, dog bite liability and other scenarios can be minimized or removed. Landlords who believe most policies are the same may fall into the trap of being under-protected,” she says. “That’s why it’s important to do your research and scrutinize the policy carefully.

To protect your interests, consider the following landlord coverage additions and options:

Replacement cost coverage and extended replacement cost coverage

This provides replacement cost for your dwelling, allowing you to repair or rebuild the damaged or destroyed building without a deduction for physical depreciation. Extended replacement cost coverage provides additional limited coverage above the dwelling limits to help provide coverage in cases where the cost of construction exceeds the original coverage amount.

Fair rental value coverage

This offers financial protection if your property is damaged and rendered uninhabitable due to a covered loss,” O’Rourke says. “If your tenants are unable to live in the property, your insurance will reimburse you for the lost rent during the time it takes to repair or replace the damaged residence.

Water damage coverage

This coverage covers damages to the building or anything inside the building from flooding, sewer backups and other natural disasters -- typically not covered by a basic policy.

Short-term home-sharing endorsement coverage

This can protect your rental property if it’s listed through companies like Airbnb or VRBO. O’Rourke says, “a base landlord policy may not cover or may limit coverage for losses on short-term rental unless you purchase this endorsement.

Service lines and critical home systems coverage

Repairs for service lines on your rental property and protection for a wide range of critical home systems, such as appliances or electronics, are available as an optional coverage,” notes O’Rourke.

Eviction expense reimbursement coverage

O’Rourke says this can provide limited coverage for specific expenses incurred due to an eviction action based on specified reasons, including non-payment of rent, breach of the rental or lease agreement, and substantial damage to the home.

Umbrella policy

An umbrella policy for landlords with multiple properties or high net worth. Umbrella policies can allow you to purchase millions of dollars in protection at a relatively low price. This coverage applies after your landlord policy benefits are exhausted.

Renter default protection

Renter default protection pays you for lost rental income if your tenant fails to pay rent, must be evicted due to a court order, undergoes a hardship or dies unexpectedly.

Landlord insurance vs. umbrella policy

Teresa Scharn, the Columbus, Ohio-based vice president of Product Development Personal Lines for Nationwide, explains that an umbrella policy provides additional limits of liability for the property owner beyond the amount listed in the homeowners or landlord policy.

When owning a rental property, you may have an increase in liability exposure and more assets to protect,” says Scharn. “When you have more assets than the liability limits on the homeowners or landlord policy, a personal umbrella liability policy is recommended.

Instead of purchasing an umbrella policy, “if you don’t want the extra expense, it may be possible to raise your landlord liability coverage from, for example, $300,000 to $1 million for a small amount more per year,” suggests Allan.

Common landlord insurance claims

Landlords have more to worry about than homeowners because tenants don't always know how to prevent property damage, and they have less to lose than you do if your structures fail. According to the Insurance Information Institute, here are some common insurance claims you might face when renting out your house, their average cost, according to the Insurance Information Institute, and how to avoid them.

Homeowners vs. landlord insurance when renting out a room in your home

Do you need special homeowners insurance for landlords if you just occasionally rent through Airbnb or other services? It depends.

First, check with the referral service to see what protection it offers landlords. Airbnb, for example, includes Host Protection Insurance in its basic fee. This insurance provides primary liability coverage for up to $1 million for third-party claims of bodily injury or property damage and may also cover damages caused by guests. If you work through a service that does not provide insurance or manage your own rental, make sure you're sufficiently protected before taking in tenants.

If you rent out all or part of your house for a short period --for instance, over a single holiday period or a major sporting event -- you've got a few options for insurance protection.

1. Your current insurer may allow you to take in a short-term boarder at no additional charge--ask.
2. Your insurance company might sell you an endorsement(or rider) for your current policy.
3. If you plan to take in short-term boarders regularly, you may need to insure for business activities. This is something done by a bed and breakfast or small hotel.

“If you are renting out a spare room in your home to a long-term tenant, your homeowners policy can provide coverage for liability and fair rental value,” says O’Rourke. “If you are renting out a separate structure on the same premises to someone, you may need to endorse your policy to provide coverage for that structure and your liability protection. But be aware that there may be eligibility or coverage limitations on the number of tenants you can rent to at your property.”

The most important thing is that you let your insurer know what you're doing and ask questions about landlord vs. home insurance, as well as anything you are unsure of. If something happens and you did not notify your homeowners insurance company about your tenants, it's unlikely that damage or liability would be covered.

Attorney Larry Buckfire cautions against taking chances with temporary tenants. "It is essential that you obtain additional coverage if you are renting out your property," he says, "Even if only for short periods of time. The insurance company will deny a claim if your personal property is being used for 'business purposes' and your policy is a standard homeowner's policy. This will result in you having no coverage for an injury that occurs on the property or even personal property damage caused by a renter. You will be personally liable for all damages."

Landlord insurance application information

Ready to apply for a landlord policy? Be prepared to provide the following information on your application form:

• Property address
• Current property value
• Date of purchase and purchase price for the property
• A list of system upgrades and improvements, especially electrical, plumbing, & HVAC
• Current or recent rental property insurance policies and your claims history record
• A list of all safety and security measures, including burglar alarms, motion sensors, fire sprinkler systems, guard and security gates
• A list of potential hazards, including fireplaces or wood stoves, swimming pools, hot tubs and gym equipment
• Copy of your standard lease agreement
• Desired coverage, including loss of income, windstorm, flood and umbrella liability
• List all additional structures on the property, such as garages, laundry facilities, and storage buildings
• List of employees and their functions, such as grounds maintenance, housekeeping and office staff

How to change homeowners insurance to landlord insurance

Scharn recommends switching from a homeowners insurance policy to a landlord insurance policy when your needs change.

“Whenever a property owner changes the use of a property from owner-occupied to renter-occupied – whether it’s a short-term or long-term rental – they will need to work with their agent to replace the homeowners policy with a landlord policy. Failure to do so can result in coverage exclusions in the homeowners policy,” she says.

Say you plan to vacate your home for an extended period – perhaps to travel or due to an extended stay in a medical facility. If you plan to rent your vacant home out during this time, “it’s possible and recommended to make the change from a homeowners policy to a renter’s policy,” says Allan.

Contact your insurance agent or broker to discuss and execute this strategy.

How to save on home insurance vs landlord insurance

You can save on a landlord policy the same way you can on your homeowners policy--by bundling your landlord policy with your auto and other policies, improving your credit rating, raising your deductible, adding an umbrella policy, and comparison shopping for insurance. In addition, there are six landlord-specific actions you can take to reduce your costs.

1. Maintain your property

Well-maintained homes have fewer claims, and you can be rewarded with lower premiums. These actions and equipment make you a more attractive insurance customer:

• Keep walkways in good repair, free of large cracks
• Ensure your plumbing system is checked at regular intervals for leaks, aging angle stops and supply lines to faucets, toilets, and dishwashers
• Handrails must be present where falling is a reasonable possibility
• Eradicate any mold
• Install hard-wired smoke and carbon monoxide detectors
• Make sure hallways and walkways are well-lit
• Add child-safe window hardware
• Periodically check the property for loose or broken electrical outlets, light fixtures, wall switches or other electrical fixtures

2. Outlaw smoking

Smokers increase the chance of property damage. Give the place a deep clean, add a no-smoking rule to your standard lease agreement and request a non-smoking discount from your insurer.

3. Require renters' insurance

Personal property coverage isn't just important for you as. the landlord. Another way to reduce your insurance premiums is to require that your tenants carry renters insurance that protects their personal property and provides liability coverage if their guests are injured on your property.

As the landlord, you insure your own possessions. There is no personal property coverage for your tenant included in your landlord policy. To avoid litigation if your tenant's personal property is stolen or damaged, you can require a tenant to buy renters insurance (about $12 to $18 per month) as part of the lease agreement. Eric Bowlin's website for new landlords recommends it because:

Expert tip: If something happens to the tenant's belongings, they will often want you to pay for it, even if it's not your fault. Even if they are wrong, renters insurance can help you minimize those stresses.

4. Have tenants cover pet-related liability

Bowlin also recommends that you make pet owners responsible for pet damage and liability coverage.

Expert tip: Liability insurance is essential, but especially for pet owners. Pass the liability issues to tenants by requiring them to carry a pet liability policy along with their renters insurance.

5. Add safety equipment and new systems

Describe for your insurer everything you do to improve the safety of the property. Alarm systems, security cameras and motion detector lighting may make your property less appealing to burglars and more attractive to insurance underwriters. Inform your broker of new systems and fixes. Heating, electric and plumbing upgrades can lead to better pricing.

6. Minimize claims

As with homeowners insurance, the fastest way to increase your premiums is to file a claim. If you filed a claim on your homeowners policy within the last three years, it may be reflected in the cost of your landlord policy. Bowlin says, "An investment property needs constant repairs, so in general, I find it is best to have a high deductible policy. It isn't good to put in a lot of claims, so I save those for major problems that I truly need help paying for."

Frequently asked questions about landlord insurance vs. homeowners insurance

Is landlord insurance cheaper than homeowners insurance?

Per the Insurance Information Institute, landlord insurance policies often cost about 25 percent more than a common homeowners policy to cover increased protections. By comparison, the average cost of homeowners insurance is $2,285, according to Insurance.com research of rates from top insurers for nearly every ZIP code in the country.

Is it worth getting landlord coverage?

Yes. Teresa Scharn with Nationwide says “anyone who owns a rental property of any value should have landlord coverage. Even if the owner doesn’t want to cover the dwelling or property, they will likely still need personal liability protection.”

Do I need both homeowners insurance and landlord insurance?

If you are renting a room in your owner-occupied home, you typically only need a homeowners insurance policy, according to Scharn. “A separate landlord insurance policy will usually be needed when the property held for the rental is a separately deeded property,” she adds.

Who has the best landlord coverage?

The best landlord insurance company and policy for you will depend on your needs and budget. It’s smart to shop around and request quotes from several different insurance companies so that you can make a more informed decision. Research each insurance company carefully, read customer reviews online and check the Better Business Bureau rating for each.

Landlord insurance: don't skimp

There are many ways to save on landlord coverage, but the most significant long-term savings come from simply having it. Skimping on insurance and hoping nothing bad happens could be the most expensive mistake you ever make.