Summary
Landlord insurance is fundamentally different from homeowners insurance. Rental property investors must understand the core coverages available along with common exclusions that leave certain risks uninsured. Investors should also be aware of how underwriting guidelines and market conditions directly impact coverage availability and premium pricing.
Understanding Insurance for Rental Properties
Insuring a home that you live in is much different than insuring a rental property used as a business venture. Homeowners insurance focuses on personal liability and living expenses if you were to be displaced from your home. Landlord insurance is structured to protect you from rental-related liability risks and potential losses of rental income.
Because rental properties involve tenants, their guests, contractors, etc., they carry a higher level of liability exposure. Landlord policies account for this with higher limits of liability and coverage tailored to rental-specific scenarios. So, while insuring a rental property under a homeowners policy may seem cheaper or more convenient, doing so can create serious coverage gaps and may lead to denied claims. Using the correct policy is one of the most important steps in protecting both your investment property and your personal assets.
Coverage Options Every Landlord Should Consider
Dwelling (Property) Coverage
Dwelling or property coverage protects the physical structure of your rental. Whether the home is tenant-occupied, vacant, or under renovation, property coverage is what provides financial protection against damage caused by covered events. In insurance terms, these events are called perils—unexpected incidents that result in physical damage or loss. While the types of covered perils vary based on your coverage form, most landlord policies include coverage for common risks such as Fire, Explosion, Windstorms and Hail, Smoke, and Vandalism.
It’s important to note that property coverage is not a maintenance plan. Your insurance will never cover routine upkeep or general wear and tear. Dwelling coverage only applies to sudden and accidental damage resulting from a covered peril.
Premises Liability Coverage
Premises Liability is arguably the most important protection a landlord can carry. As a property owner, you are legally responsible for ensuring your premises are reasonably safe for tenants, guests, contractors, and even uninvited individuals.
Landlords are expected to maintain the property, repair known hazards, and warn occupants of potential dangers. Failure to adhere to these responsibilities may be considered negligence, and resulting injuries or death could get you involved in a lawsuit. A Premises Liability policy helps protect you from the significant costs associated with these types of claims. Your Premises Liability ideally covers:
- Payment of bodily injury or property damage for which you are legally obligated to pay
- Medical expenses for injured parties
- Coverage for carbon monoxide pollution
- Canine liability
- Defense costs like counsel, court fees, and judgements
Landlord liability limits often start at higher amounts than homeowners policies, reflecting the increased liability exposure associated with rental properties.
Tenant Liability/Renters Insurance
Tenant liability products protect landlords financially when a tenant accidentally damages the property. Common examples include accidental kitchen fires, water damage, or other tenant-negligent losses. If the landlord is listed as an Additional Insured on the tenant’s renters insurance policy, these losses are likely to be covered through subrogation. Subrogation is the assumption of another’s right to collect debt or damages. So, after your property insurer settles your claim, they will also consider submitting a claim to the tenant’s renters insurance for that carrier to reimburse them for the loss they paid out (up to the personal liability limit). This lowers your loss ratio and makes insurers look more favorably on you.
However, if a tenant falls behind on payments and their coverage lapses, you may find yourself unprotected for tenant-caused losses. Tracking each tenant’s policy and ensuring it remains in force can be time-consuming and difficult for landlords with multiple properties. The Tenant Protector Plan® by National Real Estate Insurance Group is a landlord-purchased coverage that protects against tenant-caused negligent damage, working in excess of renters insurance and helping protect your investors’ property and loss history.
Learn more about how renters insurance and NREIG’s Tenant Protector Plan® work together here.
Loss of Rents Coverage
Loss of Rents helps protect landlords in cases where their rental property has become uninhabitable due to a covered loss. While property insurance may cover necessary repairs, Loss of Rents replaces the rental income you would otherwise lose while the unit is being restored.
For example, if a burst pipe causes significant water damage and your tenant must temporarily move out, Loss of Rents can reimburse the rent you would have collected during the repair period, so long as the underlying property loss is covered under your property policy and you can produce evidence that a viable lease is in force.
Click here to learn more about protecting your income with Loss of Rents coverage.
Property Management Errors and Omissions (PMEO)
Any property manager you hire should carry some type of professional liability coverage to protect against claims arising from errors or negligence in their work. But if you self-manage your rentals, those same policies are typically unavailable for you, and your premises liability coverage offers little to no protection for management-related risks.
Property management activities may include setting rent, advertising vacancies, screening tenants, handling maintenance requests, and enforcing lease terms. If an error or oversight in these duties were to result in a lawsuit, you could be responsible for legal defense, settlements, and judgements. Property Management Errors & Omissions coverage can help cover these costs.
To learn more about PMEO and whether it’s appropriate for your operations, read our full guide here.
Importance of Underwriting
Underwriting is a risk assessment process used by insurance carriers to determine if they will insure a property, at what price, and under what terms. Each insurance carrier has its own set of underwriting guidelines that a property must fit into for coverage to be offered. Considered factors may include property condition, location, occupancy status, and age of major systems. Insurers may also choose whether they are willing to accept certain risk criteria such as distance to coast, wiring type, unit count, number of stories, etc.
Underwriting directly impacts coverage availability, pricing, and claim outcomes. Properties that are accurately evaluated are less likely to experience unexpected exclusions or claims issues.
As an independent insurance agency, National Real Estate Insurance Group partners with carriers to provide specialized coverage through our own insurance program. As such, our carrier partners provide us with their distinct guidelines for insuring properties. Our team meticulously evaluates property information gathered from proposal requests and other resources to ensure compliance and accuracy. If a property aligns with a carrier’s underwriting criteria, we have the authority to then bind coverage.
Common Exclusions in Landlord Insurance
Exclusions play a key role in defying the limits of your insurance coverage by outlining what is not covered by your policy. Carriers exclude certain risks for a variety of reasons. Some exposures are too large or catastrophic to insure under a standard policy, while others involve maintenance-related issues or damage that develops over time and is considered the property owner’s responsibility. Remember, insurance is intended to cover sudden, accidental losses, not gradual deterioration, or preventable issues.
Understanding which exclusions are typical for investment policies can help highlight the risks you retain as the property owner and ensure you do not mistakenly expect coverage for incidents that your policy specifically omits. Some exclusions, though not all, can be bought back by endorsement or a separate policy.
Common exclusions found in landlord insurance policies include:
- Wear-and-tear
- Intentional tenant damage
- Mold and fungus
- Sewer & drain backup
- Earth movement or flooding
- Faulty workmanship
For a more in-depth breakdown of these exclusions, read the full blog here.
Why Insurance Premiums/Rates Change
Insurance premiums are determined by carriers based on the level of risk they are taking on. Factors like coverage amounts, deductibles, property location, construction type, claims history, and underwriting considerations all play a role in pricing. Over time, carriers may adjust rates to reflect changes in risk exposure, market conditions, or inflation. These adjustments ensure premiums remain aligned with the cost of paying future claims and help maintain financial stability.
In recent years, property owners across the country have experienced rate increases driven by a hard property market, inflation, labor shortages, increased building costs, and an increase in the severity of various weather phenomena.
Further reading: How Economic Conditions and Natural Disasters Affect the Insurance Market.
Next Steps for Landlords
- Confirm your current insurance policy is designed to cover rental properties, not owner-occupied homes
- Review your current insurance policy for coverage gaps that could be filled by landlord-specific add-ons
- Familiarize yourself with your current policy’s exclusions
- Monitor market conditions periodically to anticipate rate changes and adjust budgets as needed
