Do I Need Landlord Insurance?

If you’re a landlord, whether you’re a small business landlord renting out a single room in your home, or a big business landlord renting out an entire building, you should be familiar with landlord insurance. Some of you may only rent out a room for a few weeks per year, in which case you can disregard this post; homeowner’s insurance will typically do the trick. For the rest of us, landlord insurance is a necessity, as your homeowner’s policy simply will not suffice.

Having said that, for those of you who are subletting a room in a home that you also occupy, you may have the option to endorse your homeowner’s policy with “unit rented to others” coverage, as opposed to buying a separate policy. This is something you’ll want to discuss directly with your insurance representative. Relying on your homeowner’s policy alone, however, can be risky; many claims that you make may not be covered. A homeowner’s insurance company will not take rented space into account when they issue your policy. If the policy doesn’t indicate any coverage related to rental space, your coverage will likely be denied in the case of a home related accident. So, endorsing the coverage in these types of scenarios is crucial.

If you don’t live in the same space as your tenant, whether you rent out a condo unit, an entire house, an apartment space or several apartment spaces in an entire building, you will need a separate policy. Now, when I say you’ll “need” one, I’m not talking from the stance of the law, as landlord insurance is not a requirement by law. But if you fail to issue a policy you’ll be jeopardizing your entire business venture; you’ll run the risk of financial loss related to damages due to fire, break-in, severe weather and more. If you aren’t covered and your property encounters damages of any kind, those costs will come out of your pocket. Would you really want to cover damages exceeding $100,000 due to a fire, for example? Would you even be able to comfortably do so? With a good landlord insurance policy, you can sleep well at night knowing that your rental unit is covered in the off chance that it becomes uninhabitable due to circumstances beyond your control.

Landlord insurance will typically provide several important types of coverage, but the exact policy would depend on the insurance company that you choose to work with, and the options that you choose to include. Your policy may consist of one, or all of the following:

Property Damage: This will cover any costs associated with damage to your property due to storm damage, fire, theft, vandalism or tenant damage. When opting for this coverage, it’s important to ensure that this clause will cover the replacement costs for your entire property in the rare event of a total loss.

Loss of Income:  On the off chance that your rental property becomes uninhabitable due to a covered loss i.e. fire, this coverage will reimburse you for all the “lost rent” you’ve incurred while the unit is being made habitable once again.

Liability Insurance:  This may be the most important aspect as it will protect you against liability claims and lawsuits. Without it, if a tenant or visitor injures themselves in your property, you can end up in a mess of hot water. Liability insurance will help to cover the costs associated with bodily injury claims on your property, including but not limited to funeral costs, medical payments, settlement costs and legal fees. You’ll also be covered if you are found to be responsible for damage to any of your tenants’ property. For example, if you neglect to fix a broken water pipe in the unit, and it bursts causing damage to the tenants’ personal belongings.

You can also buy additional or “optional coverage” depending on what you deem to be necessary, but the above 3 coverages are of utmost importance. In addition, you may wish to have coverage related to natural disasters, or you may wish to add employer liability insurance, rent guarantee insurance, or even landlord contents insurance; landlord contents insurance will cover any of your own personal belongings that are within the rental space i.e. carpeting, furnishings, paintings etc.

The cost of landlord insurance can vary greatly depending on the scope of the coverage. Some policies can be as little as $500 per year or less (this is mainly the case for small rental units); other policies can run into thousands of dollars a year (mainly for larger units). Keep in mind, landlord insurance is tax deductible, as being a landlord is a business endeavor.

So, landlord insurance may not be necessary by law, but failing to issue the coverage is a rookie mistake.