Why You Need to Update Your Homeowners Insurance Before Renting Out Your Property
Homeowners and landlords use their property differently, so they face different risks. That’s why several distinctions exist between homeowner’s insurance and landlord insurance.
For insurance purposes:
A homeowner lives in a primary residence full-time. They own the home completely or make a mortgage payment. Usually, they keep most of their belongings at this home, too.
A landlord rents/leases the property out for use to another party for long-term residency. Landlords keep very few belongings at the home, beyond things like appliances, light fixtures and perhaps lawn care machinery.
And for short-term rentals — like Airbnb properties — there is another sort of insurance available.
Who Needs Landlord Insurance?
If you’re about to become a landlord by renting out a home that was previously your main residence, or a home you inherited, it’s vital that you buy landlord insurance. You need to make sure you have the right coverage at the rental property to protect yourself, financially.
And, since you’re making changes to your property insurance, it’s a good idea to shop around for several quotes. You may find significant savings!
At Einsurance.com, our experienced team of licensed insurance agents works hard to match consumers with the right insurance products. In this piece, we’ll explain everything you need to know about landlord insurance versus homeowner insurance.
Keep reading to learn about:
We’ll start with some important key points that apply to both landlord and homeowner’s insurance policies.
Landlord Insurance Vs. Homeowner’s Insurance
Both landlord insurance policies and traditional homeowner insurance policies are built on the notion of fire coverage. Both types of policies will pay — up to policy limits — to rebuild a home after it burns down.
This is called “Coverage A,” the cost to rebuild a home from the ground up. Insurers use formulas to figure your Coverage A amount, and many other coverages are based on a percentage of that number.
Both landlord insurance and homeowner’s insurance also cover perils like:
Wind damageHail damageLightning damageMalicious mischiefCivil unrest and riotsAnd airplane crashes
And generally, neither policy will cover earthquakes or floods. For those perils, you’ll probably need to buy an “endorsement” or a separate policy.
What is the Difference Between Landlord Insurance and Homeowner’s Insurance?
For the consumer, there are three primary distinctions between a landlord policy and a homeowner policy. They are:
Contents coverage amountsLiability issuesIncome protection
Contents Coverage Differences
First, a landlord policy does not offer much coverage for the contents of a structure. In other words, if this rental home burns down to the ground, a landlord policy will not cover things like furniture, clothing, cosmetics, electronics, tools or computers kept at the home.
The assumption is that most of the contents in the home belong to the tenant, not the landlord. And the tenant can buy renter’s insurance to cover their belongings.
Coverage “C” is For Contents
This is different from a homeowner’s insurance policy, in which Coverage C equals 30% to 50% of your Coverage A. This contents coverage exists to replace your belongings after a covered peril.
So, for instance, if your primary residence is valued at $200,000, your policy may provide another $100,000 after a total loss, to replace all your stuff.
Pro tip: If you plan to rent out this home as completely furnished, be sure to mention that when getting quotes for landlord insurance. You may wish to buy extra contents coverage.
Liability Issues
As a landlord, you will face more liability issues. We live in a very litigious society, meaning that people like to sue each other whenever they can for a fast paycheck. And if your tenant, or their guest, gets hurt on your property, you will probably find yourself in court.
Remember, in the insurance world, “liability” equals financial responsibility.
If a tenant gets hurt, or if their property gets damaged through your negligence, you will be financially responsible to make them whole again. Liability coverage exists to protect you from lawsuits.
In some cases, your liability insurance will “settle” with a claimant and write them a check. In other cases, they’ll help pay an attorney to represent you in a lawsuit. It’s up to the insurer to decide what path they take.
Therefore, many landlord policies include extra liability coverage. And often, landlords choose to buy as much liability as they can afford.
Pro tip: If you’ve bought the most liability coverage available for your properties, and still feel you need more coverage because you’re a high-net-value individual with lots of assets, you can buy an added liability coverage with an umbrella policy.
Landlord Policies Help Protect Your Income
And finally, know that a landlord policy can help protect your rental income after a covered loss.
Suppose you’re earning $1,500 per month on a rental home. One day, it burns down completely. Your landlord protection policy might cover that rental income for up to a year, in addition to paying to rebuild the structure.
If it takes a whole year to rebuild the rental, that’s $18,000 of income you could miss without landlord insurance.
Now that you know the differences between landlord insurance and homeowner’s insurance, let’s talk about rental property insurance requirements.
Rental Property Insurance Requirements
Rental properties are not your main residence, nor are they a second home or summer home where you might spend time occasionally. They’re not short-term rentals (Airbnbs), either. Insurers consider them to be commercial properties, which exist to generate income for you.
Now, every state has slightly different laws and every insurer presents a slightly different offering. As of 2024, there is no state law or federal law that requires landlords to buy insurance for a rental property. But if you’re making a mortgage payment on the place, the mortgagee may require you to carry property insurance with a specific deductible.
You May Need to Provide Documents
As a landlord buying insurance, you will probably need to provide some photos and documents proving that a rental home is:
Owned by you, but habited by othersBeing bought through a mortgage or owned outrightHabitable, and in good repairFree of dangerous debris, like fallen tree limbs or broken glassEssentially safeFree of fire risks or other common property claims
When you buy a landlord policy, you can expect the insurer to send out an inspector to verify everything you’ve said about the residence.
What Does an Insurance Inspector or Risk Inspection Specialist Do?
These individuals are employed/contracted by insurance companies to verify the risks an insurance company is about to take with your home. They may call for an appointment, or they may view the home from the street. Depending on the insurer, the inspector may ask to enter the property to look around and take photos.
Sometimes they measure the structure, to help insurers generate that important Coverage A amount. They may also have questions about the:
RoofingFlooringPlumbingFire extinguishersAnd fire exits
And in 2024, we know many insurers are using drone technology to view and photograph homes and yards.
The insurance company will also need to know about your expected income. You may need to provide them with a copy of the signed lease, which details the monthly rent.
It is a small hassle, which is one reason why some property owners try to dodge the landlord insurance process. Some try to keep their traditional homeowner policy while moving to a new home, and that’s a bad idea.
Let’s explore more about changing insurance when renting out a home, to see what we mean.
Changing Insurance when Renting Out a Home
Imagine you own a small home outright, and you inherit another, larger, newer home. You choose to move into the large new home and rent out the old place. This is a fairly common situation.
Can I Have Two Homeowner Insurance Policies at Two Addresses?
Usually, no. And insurance companies will “die on this hill.”
Most insurers believe firmly that consumers should only have one homeowner’s insurance policy. That’s because you only have one primary residence. You can buy other types of policies for your vacation homes, summer homes, hunting camps or short-term rental properties.
Insurers will stand firm on this point. Therefore, if you contact your insurer and try to buy a second home policy, they might refuse. And they might wonder what you’re doing and send an inspector around just to check.
But it truly makes more sense to get a landlord policy for that rental, anyway. Thanks to the reduced contents coverage, it might be much more affordable to insure a property that way, by hundreds of dollars. That means more money in your pocket every month.
Plus, if something happens to that property, you will rest easy knowing your income is protected.
And as a property owner, you want to protect yourself with the right amount of liability coverage, especially now that you have more assets to lose.
(By the way, we have seen one family go to battle with an insurer over this very point. The customers own many rental homes and allow an adult child to live in one home rent-free. It took several meetings, and they hired an attorney, but they were able to buy two homeowner policies from one company.)
The Process for Changing from Homeowner’s Insurance to Landlord Insurance
If you’re moving out of a home and making it a rental property, you need to let your insurance company know right away. You’ll probably save some money by doing so.
Just grab your current policy and call your insurer. Get a quote for landlord insurance, but don’t accept the first offering. Be sure to shop around. You might save a lot!
We invite you to try our handy online insurance quoting tools, too. We can bring dozens of insurers to your phone or email with very competitive prices.
More About Home Insurance Coverage for Rental Properties
You’ve read this far, so you’re becoming an expert on the differences between home insurance policies and landlord policies. Let’s answer some more of your most common questions.
Can I Buy Landlord Insurance for my Airbnb?
Short-term rentals, like Airbnb, do not qualify as traditional rental properties. They are income properties, but they’re more like a hotel in the eyes of the insurer.
Insurance policies for these types of investments continue to evolve, but underwriters know there is a difference between how people treat a home compared to how they may behave while on vacation.
Therefore, short-term rental insurance requires a separate product.
Can I “Bundle” my Home Policy and Landlord Policy?
Probably, yes. If you have a home policy, you can almost certainly buy a landlord policy from the same company. And if you have vehicles, recreational vehicles and boats, you may save a few bucks this way. But it still pays to shop around and keep detailed notes.
At What Point Should I Consider an Umbrella Policy?
Now that you own several properties, you should start thinking about a personal umbrella policy. These policies provide you with extra liability coverage, assuming you’re already buying the highest limit of liability on your home, rentals and auto policies.
In short, an umbrella policy will pay for liability claims beyond your current limits. So, if you have $1 million in liability coverage on a rental home, but get sued for $2 million, an umbrella policy will cover that difference.
There is no set number of properties or predetermined amount of personal wealth you need to buy this sort of policy. However, if you think you could get sued for more than your insurance will cover, or if you have a lot of assets, or even if you’re losing sleep worrying about this question, we invite you to get a quote for umbrella insurance, too.
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