What Type of Landlord Insurance Do You Need?

Hosting long-term and short-term rentals has become a great way for homeowners to make stable money. Wrongfully, many potential landlords believe the transition between homeowner and landlord means minor changes to insurance.

At Classic Property Management, we’ve seen plenty of homeowners become landlords, and we know the transition goes beyond the duties of a landlord and brings significant insurance changes.

The insurance you have to protect your owner-occupied properties no longer provides adequate coverage once you rent out your property. Instead, you’ll need a specialized form of landlord insurance. This policy is essential to safeguard your investment, protect against liability, and ensure you are covered for potential losses from renting out your property. 

Let’s dive into the different types of landlord insurance and why each is important.

The Basics of Landlord Insurance

Unlike homeowners insurance, which primarily covers the owner’s dwelling and personal belongings, landlord insurance protects the property from damage and the owner from potential liabilities associated with renting. This type of insurance typically includes three main components: property damage, liability protection, and loss of rental income.

Property Damage Coverage

Property damage coverage covers physical damage to the property caused by events such as fire, storms, vandalism, and theft. It protects your rental property against these perils and allows for repairs or rebuilding if necessary. 

Property damage coverage is a must for new landlords. It helps preserve the value of their investment and prevents significant financial losses if disaster strikes.

Liability Protection

Liability coverage protects you if someone is injured on your rental property. For example, if a tenant or visitor slips and falls due to a hazard on your property, you could be held liable for medical expenses or even face a lawsuit. 

Liability protection helps cover legal costs, medical bills, and any settlements or judgments against you. This coverage is essential, as legal claims can be costly and time-consuming, potentially threatening your financial stability.

Keep in mind that there are several things liability insurance doesn’t cover. Some of the following uncovered issues include:

• Intentional damage
• Injuries that occur at business events like weddings or professional party events
• Damage to your own property inside of a unit (i.e. appliances)

Loss of Rental Income

If your property becomes uninhabitable due to a covered event, such as a fire or severe storm, loss of rental income coverage can reimburse you for the rent you would have collected during the period of repairs. 

This helps you receive continual income even when your property is temporarily out of commission. This coverage is invaluable for landlords who rely on rental income to cover mortgage payments or other expenses.

Understanding Different Policy Levels: DP1, DP2, and DP3

When shopping for landlord insurance, you may encounter terms like DP1, DP2, and DP3. These refer to different levels of coverage available under dwelling policies, each offering varying degrees of protection.

DP1 Policies

DP1 is the most basic and budget-friendly option. It typically offers coverage on a named-peril basis, meaning it only covers specific events listed in the policy, such as fire or vandalism. However, it often provides actual cash value (ACV) for losses, which means depreciation is factored into the payout, potentially leaving you with less than needed to repair or replace the damaged property fully.

DP2 Policies

DP2 policies provide a broader range of named perils and usually offer replacement cost coverage instead of ACV. This means the policy will cover the cost of replacing the damaged property without deducting for depreciation. DP2 policies are a good middle-ground option, offering more comprehensive coverage without the higher premiums associated with DP3 policies.

DP3 Policies

DP3 is the most comprehensive and expensive option, providing open-peril coverage. This means that unless a peril is expressly excluded, it is covered by the policy. DP3 policies also offer replacement cost coverage, ensuring you have enough to rebuild or repair your property to its original state. For landlords looking for the highest level of protection, a DP3 policy is the ideal choice.

Short-Term Rental Insurance

If you’re renting out your property on a short-term basis, such as through platforms like Airbnb or VRBO, standard landlord insurance may not suffice. Short-term rental insurance is specifically designed to cover the unique risks associated with short-term rentals, including higher guest turnover and increased potential for damage.

Short-term rental insurance typically costs more than standard landlord insurance, reflecting the increased risk. However, it is crucial for protecting your property against potential damage, theft, or liability that could arise from short-term guests. While platforms like Airbnb offer some protection, they do not replace the need for a comprehensive insurance policy covering the property itself.

The Cost of Landlord Insurance in 2024

In 2024, landlords can expect to pay 15-20% more for landlord insurance than they would for standard homeowners insurance. The exact cost depends on several factors, including the location of the property, its age, construction type, and how it is used. 

Your deductible, the amount of coverage you choose, and any optional extras such as water damage or vandalism coverage will also affect the premium.

It’s essential to shop around and compare policies from different providers to find the best coverage at a reasonable price. Remember, the cheapest policy is not always the best option. Your property management team can help you find coverage that adequately protects your specific needs and circumstances.

Protect Your Investment With Classic Property Management

Landlord insurance is a critical component of owning rental property. Without it, you could be exposed to significant financial risks, from property damage to liability claims. Whether you’re renting out your property long-term or as a vacation rental, having the right coverage in place is essential to protect your investment.

At Classic Property Management, we understand the complexities of managing rental properties and the importance of having the right insurance coverage. Our team can help you navigate the available options and give your property the protection it deserves. With the right insurance, you can know that your investment is secure, no matter what happens.

If you have any questions about landlord insurance or need assistance managing your rental property, reach out to us today! We’re here to help you make informed decisions and protect your investment for the long term.