Landlord Insurance vs Homeowners Insurance: What You Actually Need
Here’s a scenario that happens more often than you’d think: a landlord buys a rental property, keeps the homeowners insurance policy in place, collects rent for two years, and then a pipe bursts and causes $30,000 in water damage. They file a claim. The insurance company investigates, discovers the property is tenant-occupied, and denies the claim entirely.
The landlord had insurance. They just had the wrong kind.
Why Homeowners Insurance Doesn’t Work for Rentals
Homeowners insurance is designed for owner-occupied properties. It covers your personal belongings, your liability as a homeowner, and damage to a property you live in. The moment you move out and a tenant moves in, the risk profile changes — and so should the policy.
Insurance companies consider rental properties higher risk than owner-occupied homes. There’s more wear and tear, more liability exposure, and the property owner isn’t present to catch small problems before they become big ones. A homeowners policy isn’t priced for that risk, which is why insurers exclude tenant-occupied properties from coverage.
If you file a claim on a homeowners policy for a rental property, the best outcome is a denied claim. The worst outcome is the insurer canceling your policy entirely — retroactively — which leaves you with no coverage at all and potentially owing back any claims they previously paid.
What Landlord Insurance Actually Covers
Property damage — the building structure and any landlord-owned fixtures (appliances, HVAC, water heater) against fire, storms, vandalism, and other covered events. This is the core of the policy.
Liability protection — if a tenant or visitor is injured on your property and sues you, the liability portion covers legal defense and any settlement or judgment. This is arguably more important than the property coverage. A single slip-and-fall lawsuit can exceed the value of the property.
Loss of rental income — if a covered event (like a fire) makes the property uninhabitable, this coverage replaces the rent you would have collected during repairs. Without it, you’re paying the mortgage out of pocket while the property sits empty.
Other structures — detached garages, sheds, fences. Usually covered at a percentage of the main dwelling coverage.
What landlord insurance does NOT cover: the tenant’s personal belongings (that’s what renter’s insurance is for), normal wear and tear, and damage from deferred maintenance. Flood and earthquake coverage require separate policies in most areas.
What It Costs
Landlord insurance typically costs 15-25% more than a standard homeowners policy for the same property. For a property insured at $150,000, that might mean $1,200-$1,800/year versus $1,000-$1,400 for homeowners coverage. The exact cost depends on location, property age, construction type, claims history, and the amount of coverage you choose.
That extra $200-$400/year is a rounding error compared to the cost of a denied claim or an uncovered lawsuit. Build it into your deal analysis as an operating expense and move on.
Coverage Levels to Consider
Liability limits. The standard is $100,000 to $300,000. For rental properties, $300,000 minimum is recommended. If you own multiple properties, an umbrella policy that adds $1-2 million in additional liability coverage across your portfolio costs $200-$400/year and is one of the best insurance values in real estate.
Replacement cost vs. actual cash value. Replacement cost pays to repair or replace at current prices. Actual cash value deducts depreciation — so a 15-year-old roof that costs $12,000 to replace might only pay out $4,000 under ACV. Pay the extra for replacement cost coverage.
Loss of income coverage. Make sure the policy covers at least 12 months of rental income. Major repairs after a fire or storm can take 6-12 months. Without income coverage, you’re funding the mortgage from your pocket the entire time.
Require Renters Insurance from Your Tenants
This is non-negotiable. Require every tenant to carry a renters insurance policy and name you as an additional interested party (not additional insured — there’s a difference). Renters insurance costs the tenant $15-$30/month and covers their personal belongings and their liability.
Why do you care about the tenant’s coverage? Because if a tenant causes a fire that damages the property, your landlord insurance covers the building — but the deductible comes out of your pocket. The tenant’s renters insurance can cover their liability for causing the damage, which means their policy pays before yours does.
Add a renters insurance requirement to your lease. It’s standard practice and no reasonable tenant will object to a $20/month policy.
Finding the Right Provider
Not every insurance company offers landlord policies, and rates vary significantly between providers. Get quotes from at least three companies. Local insurance agents who specialize in investment property are often better than national carriers for landlord policies because they understand the local market and can tailor coverage appropriately.
If you’re looking for insurance providers who work with landlords, the Underground Landlord business directory connects you with service providers in your area — including insurance agents who specialize in rental property coverage.
The right insurance policy is boring until you need it. Then it’s the difference between a manageable setback and a financial catastrophe. Get the right policy, review it annually, and build the cost into every deal you analyze.