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Landlord Insurance
Last updated: April 16, 2024
Insurance premiums are on the rise, up 23% year-over-year, and this directly affects your rental property's cash flow. But it gets worse... We reviewed thousands of landlord insurance policies and found that landlord insurance premiums are over-quoted by 27%? This is because many real estate investors get their landlord insurance policies from insurance agencies that do not specialize in landlord insurance. What's worse: these agencies are incentivized to sell you a more expensive policy because they get paid as a percentage of your premium. Even well-intentioned insurance agents commonly offer uncompetitive landlord insurance quotes because they're captive to one insurance carrier.
That's why we created the OfferMarket Insurance rate shopping platform. In under a minute you can shop 40+ carriers to get the best coverage at the lowest possible price. Your quote is quality-controlled by our expert team that specializes in saving money for rental property investors. Every month we save thousands of dollars for our clients, how much will you save?
What is Landlord Insurance?
Landlord insurance is a bundle of insurance, similar to homeowners insurance, that is specifically designed for rental property investors. Whether you own one rental property or hundreds of rental properties, landlord insurance is a critical component of your risk management and asset protection strategy.
Not all homeowners insurance policies are the same. It's important to understand the core components of a comprehensive landlord insurance policy and how to save money when shopping for your policy.
What risks does Landlord Insurance cover?
A comprehensive landlord insurance policy will include the following coverages:
🏠 property insurance ⚖️ general liability insurance 💸 business interruption insurance 🌊 flood insurance (if in flood zone, technically a separate policy)
Property Insurance
The primary risks that landlords face is damage to the property. Property damage can occur for a variety of reasons, and whether you will be insured for a specific risk depends on which property insurance coverage you select. Property insurance can also cover the cost of temporary housing for tenants if the property is uninhabitable while repairs are being made.
There are three types of property insurance coverage, called "forms". Basic Form, Broad Form and Special Form. The types of risks insured under each form are referred to as "perils".
Basic Form Perils
The most cost effective property insurance policy will only cover basic perils which include:
🔥 Fire 🌩️ Lightning 💥 Internal explosion
Extended Coverage (EC) Perils
The acronym WCcSHAVVER is used to help remember all of the extended coverage perils that you can add to your basic form property insurance policy:
🌬️ Windstorm 🥷 Civil commotion 🔥 Smoke damage (if not from fire, must result from sudden damage) 🌨️ Hail ✈️ Aircraft 🚗 Vehicle 🌋 Volcanic action 💥 Explosion 🥷 Riot
V&MM is the acronym for vandalism and malicious mischief.
🏚️ Vandalism 🥷 Malicious mischief
Broad Form Perils
BIG AFFECT is the acronym insurance agents use to remember all of the broad form perils that are included in addition to the basic form and extended coverage perils.
🥷 Burglary damage 🧊 Ice, sleet, now (weight) 🪟 Glass (breakage) 🚰 Accidental discharge of water/steam 🧊 Freezing objects ✈️ Falling objects ⚡ Electrical current 🏚️ Collapse 💥 Tearing asunder
Special Form Peril
The most complete property insurance is referred to as "Special Form", "open form" or "DP-3" for single family homes. Special form covers all risks of direct physical loss except those specifically excluded in the policy (so be sure to read your policy to understand what is excluded. Common exclusions:
🌊 Flooding -- will need a separate flood insurance policy 🌎 Earthquake -- will need to add an earthquake "endorsement" 🤡 Intentional damage ⚠️ Building code enforcement 🔌 Power interruption off premises 🇺🇸 Government seizure
General Liability Insurance
General liability insurance protects you from liability if there is an injury or damage to someone's property at your rental property. Most landlord insurance policies for 1-4 unit rental properties will cover up to $500,000 per occurrence and $1,000,000 in the aggregate for the annual term of the policy.
If a tenant falls down the stairs and sues you, your general liability insurance will cover medical costs and legal fees. If a contractor gets electrocuted and takes legal action, you'll be happy to have liability insurance.
🚑 injury at the property ⚖️ lawsuit
Business Interruption Insurance (Loss of Rent)
In addition to these risks, landlords also face the risk of loss of income due to insured claims such as property damage from a storm that causes tenants to move out, leaving the property vacant. When tenants may move out unexpectedly, you can avoid loss of rental income with a landlord insurance policy that includes business interruption insurance.
Business interruption insurance is priced very reasonably, commonly $1 per $1,000 of rental income. So if your rental property is leased for $40,000 per year, and you have a $40,000 loss of rent limit, you should expect to pay an annual premium of $40 for this specific coverage which is bundled into your landlord insurance policy.
Flood Insurance
Flood insurance may be required if your rental property is located in a FEMA special flood hazard area (SFHA). Lenders will order a flood cert and your appraisal report will indicate whether the property is in a flood zone. To see if your rental property is in a flood zone, you can use FEMA's National Flood Hazard Layer (NFHL) interactive flood zone mapping tool.
If your property is in a flood zone, we recommend and your lender will require you to carry up to $250,000 of flood insurance. Flood insurance is commonly provided by the National Flood Insurance Program (NFIP) and the premium depends on your location.
Landlord Insurance for DSCR Loans
Are you using a DSCR loan to finance your rental property? DSCR loan guidelines have strict insurance requirements that can be frustrating to satisfy. If you're not working with an insurance agency that specializes in providing insurance for DSCR loans, you risk wasting time and money. Your insurance premium affects your DSCR which affects your loan amount. In order to qualify for the highest possible loan amount, it's important to get the most cost effective landlord insurance.
| DSCR Loan Insurance | Requirement |
|---|---|
| Property Insurance | Yes |
| General Liability Insurance | Yes |
| Business Interruption Insurance (Loss of Rent) | Yes |
| Mortgagee Clause | Yes |
| Lender as Additional Insured | Sometimes |
How much does landlord insurance cost?
The cost of landlord insurance in depends on several factors:
Location
Actuarial models used by insurance underwriters factor in historical losses in your rental property's local market. Repair costs including labor and materials also vary based on location.
Property Insurance type
The cheapest property insurance option is Basic Form, and the most expensive option in Special Form.
| Property Insurance Type | Cost |
|---|---|
| Basic Form | $ |
| Basic Form with Extended Coverage | $$ |
| Broad Form | $$$ |
| Special Form | $$$$ |
Dwelling Coverage
The single largest contributor to the cost of your landlord insurance policy is the dollar value amount of dwelling coverage you select. If you buy a $200,000 rental property, depending on your lender's insurance requirements, you can insure it for less than replacement cost on up to replacement cost. If replacement cost is $200,000, you may decide you only want $150,000 of coverage. We always recommend insuring your rental property for full replacement cost value (RCV). Replacement cost value is based on a replacement cost estimate calculated by the insurance carrier. Sometimes your replacement cost estimate will be considerably higher than you believe it would cost to rebuild the property in the event of a large loss. This may lead you to select less than RCV, or an Actual Cash Value policy.
| Dwelling Coverage | Cost |
|---|---|
| Actual Cash Value | $ |
| Functional Replacement Cost Value | $$ |
| Replacement Cost Value | $$$ |
Deductible
The higher your deductible, the lower your annual premium. Many rental property investors choose a $5,000 deductible instead of a lower deductible such as $1,000. This means that in the event of a covered loss where a claim is filed, you pay $5,000 and the insurance carrier pays the remaining amount up to the limit of insurance. So if you have $50,000 storm damage, you would pay $5,000 and your insurance carrier would pay $45,000 for the property to be repaired.
| Deductible | Premium |
|---|---|
| $1,000 | $$$$$ |
| $2,500 | $$$$ |
| $5,000 | $$$ |
| $7,500 | $$ |
| $10,000 | $ |
Crime Score
If the property is in an area with a high risk of peril (i.e. vandalism, theft, fire), the cost of insurance will be higher. This is important to be aware of if you are in the process of searching for your next rental property. The safer the area, all else equal, the lower your insurance premium.
Property Condition
The worse your property condition, the more expensive your insurance.
How to protect your rental property
While landlord insurance is a critical component of your risk management and asset protection playbook as a rental property investor, it's not the only way to protect yourself and your investment.
Tenant screening
In rental property management, an ounce of prevention is certainly worth a pound of cure. We recommend conducting a credit report and background check for each adult applying to live in your rental property. Set firm guidelines for minimum credit score and background items that are grounds for immediate disqualification. Avoid making exceptions to your leasing guidelines. If you do decide to make an exception, you should require compensating factors like increased security deposit or the addition of a personal guarantor with qualifying credit and a clean background.
Regular maintenance
We recommend inspecting your property quarterly to ensure items that start small don't end up becoming major issues. In different parts of the country, the climate can be damp with periodic rain storms. Water intrusion is something to be particularly vigilant about. Make sure there are no roof leaks, basement leaks, or mold.
Tenant maintenance education
Teach your tenants about the importance of reporting maintenance items proactively. Teach them how to replace air filters, shut off the water main, and let water faucets drip during periods of extreme cold to avoid frozen pipes that burst and cause flooding, water damage, and mold.
DP-3 Insurance
DP-3 insurance is special form coverage that pays out on a replacement cost value basis. A DP 3 insurance policy is considered the best rental property insurance policy.
What is coinsurance?
A coinsurance clause means that if you do not insure your property at least to a specific percentage of the replacement cost value (usually 80%), as a penalty for being under-insured you will be responsible for paying a % of the claim beyond your deductible. Most insurers have an 80% coinsurance requirement.
Coinsurance formula
If insurance carried is less than the coinsurance requirement, then:
(Insurance Carried / Insurance Required) * loss = claim payment - deductible
So, for example, if you own a rental property with a replacement cost value of $200,000 and you only have $100,000 of property insurance on it. Let's say you have a $5,000 deductible. The property suffers a $50,000 loss when a tree collapsed on the house from a storm.
($100,000 / $200,000) * $50,000 = $25,000 - $5,000 = $20,000 payment from insurer. That means you are responsible for $30,000 of the cost to repair the property. This is why it's so important to insure your property at full replacement cost.
Landlord insurance near me
Wherever your rental property is located, we've got you covered.
- Landlord Insurance Arizona
- Landlord Insurance Florida
- Landlord Insurance Georgia
- Landlord Insurance Illinois
- Landlord Insurance Indiana
- Landlord Insurance Maryland
- Landlord Insurance North Carolina
- Landlord Insurance Ohio
- Landlord Insurance Pennsylvania
- Landlord Insurance South Carolina
- Landlord Insurance Texas
- Landlord Insurance Virginia
Landlord Insurance Florida
Florida is a tough state to get a competitive landlord insurance quote. An accurate, competitive quote without a 4-Point Inspection report and Wind Mitigation Inspection report is impossible to produce if the home is built before 2003. By having those documents on the front end of your insurance request, that will speed up the quoting process and ensure that you have the most competitive coverage and premium.
Best Landlord Insurance
You have many choices when shopping for landlord insurance. Ultimately, your selection comes down to the risks you are willing to accept and the price you are willing to pay. We recommend a comprehensive landlord insurance policy that includes property insurance, general liability insurance, business interruption insurance and, if necessary, flood insurance.
Working with an insurance agency that specializes in landlord insurance and has access to many carriers will get you the best coverage at the best price. Get your landlord insurance quote today from OfferMarket Insurance!
