Landlord Insurance vs Homeowners Insurance: Critical Differences to Understand

Summary

We will make sure you understand landlord insurance vs homeowners insurance and what each policy covers, their limitations, and how coverage differs based on whether you’re insuring a primary residence or rented property.

All personal residential insurance policies aren’t created equally, and the differences in landlord insurance vs homeowners insurance policies are significant. Whether you’re a landlord or homeowner, it’s critical to understand the key coverages and exclusions that are included in a residential property policy to ensure adequate protection for your property.

We’ll explore the following topics to help differentiate the key features of homeowners vs landlord insurance:

• An overview of homeowners insurance
• An overview of landlord insurance
• Comparing liability insurance
• Loss of use vs. loss of rents
• Contents Protection
• Why you need landlord insurance
• Long-term rentals and accidental landlords
• Cost-cutting tips for landlord and homeowners insurance

We’ll wrap things up by answering the frequently asked questions about landlord insurance vs homeowners insurance policies.

 

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An Overview of Homeowners Insurance

Mortgage lenders unfailingly require residential homeowners to carry home insurance on their properties. The reason for this is that mortgage lenders have a financial interest in the homeowner’s property. Homeowners and landlords who fail to keep their properties adequately insured will find that the lender will take it upon themselves to purchase an insurance policy for them, generally at a much higher rate.

A home is most people’s largest asset, and it’s critical to purchase the proper coverage to protect it from unexpected losses such as fire, wind, theft, vandalism, and other perils. It’s also wise to have a basic understanding of what your policy covers – and what it doesn’t. We’ll hit the highlights of both.

Key coverage provided by homeowners insurance

Depending on your homeowners policy, you may have coverage for a few perils (causes of loss) or you may have an all-risk policy (also called open perils). An all-risk policy covers all risks that aren’t specifically excluded in the policy wording.

Homeowners insurance forms can cover a variety of different dwellings including single-family residences, condos, coops, and townhomes.

A homeowners policy is lengthy because it outlines the exact circumstances when the policy will pay for a loss. Nonetheless, it’s a good idea to become acquainted with your homeowners insurance policy especially as it relates to the basic coverages such as those we’ve listed below:

• Dwelling coverage: Covers losses to the home’s structure due to a covered peril.
• Other structures: Covers other structures on your property such as a detached garage, shed, or fence.
• Personal property coverage: Covers everything inside the house that you can pick up and carry out.
• Loss of use: Pays for additional expenses you may incur if you have to vacate your home while it’s being repaired or replaced (rental payments, meals out, transportation, etc.).
• Liability protection: Covers costs associated with allegations of bodily injury or property damage by a third party including legal and defense costs.
• Medical payments: A no-fault coverage that pays for minor incidents or injuries you may be liable for.

You’ll find these coverages on the declarations page of your policy. Overall, your homeowners insurance policy is a critical financial safety net against unexpected incidents as losses to your home and liability claims can loom large.

Limitations and exclusions of homeowners insurance

Homeowners should be aware that all insurance policies contain exclusions, including all-risk policies.

Common exclusions for homeowners insurance policies include:

• Flooding
• Earthquakes
• Infestations of vermin, insects, and rodents
• Mold
• Collectibles, jewelry, fine arts, and furs
• Wear and tear

Homeowners insurance policies will only pay up to the maximum limit for each coverage. For example, a home may be covered for up to $250,000 on the dwelling and $125,000 for personal property. These are the maximum amounts the policy will pay in each category. These amounts are subject to a deductible the homeowner chooses at the time of the application.

Insurance companies base their premiums on the risks presented by a particular type of policy. Statistics show that owner-occupied properties bear less risk than tenant-owned properties. This is because homeowners generally have pride of ownership in their homes. By contrast, tenants have no financial interest in the homes they rent, and they’re often transient.

Insurance companies designed landlord insurance policies with different coverages and exclusions than homeowner policies to cover the increased risks that come with renting a property out to strangers.

An Overview of Landlord Insurance

As with homeowner policies, landlord policies also come in various forms. Certain forms are named perils and others are all-risk policies. Landlord policies also cover a variety of structure types including single-family homes, condos, coops, and townhomes. The similarities stop there, as the coverages on a landlord policy are distinctly different from a homeowners policy.

Key coverages provided by landlord policies

One of the key differences between landlord insurance vs. homeowners insurance is there is no personal property coverage (unless it is added by endorsement). The reason for this is clear – the personal property in a rented dwelling belongs to the tenant. Tenants may purchase insurance coverage for their belongings by purchasing a tenant policy, and landlords may require them to do so.

Here is a snapshot of the common landlord insurance coverages:

• Dwelling coverage: Covers losses to the home’s structure due to a covered peril.
• Other structures: Covers other structures on your property such as a detached garage, shed, or fence.
• Loss of income: Pays for the loss of rental income if the structure is damaged and the tenants can’t live in it.
• Liability: Covers costs associated with allegations of bodily injury or property damage by a third party including legal and defense costs the landlord is liable for.
• Personal property used to service the rental: Covers for repairs or replacement of appliances and equipment used to service property (water heater, air conditioning unit, furnace, lawnmower, etc.)

As with homeowner policies, landlord policies only pay up to the maximum limit as shown on the declarations policy and a deductible applies.

Limitations and exclusions of landlord insurance

While a landlord insurance policy covers many of the risks of renting out a property, policies list specific exclusions just as homeowners policies do. The same exclusions we listed above for homeowners policies apply as well as the following:

• Mechanical breakdown: Sudden or accidental breakdown of equipment or appliances
• Normal maintenance: Routine furnace, air conditioning repairs, roofing repairs, electrical repairs, plumbing repairs, etc.
• Shared property: There is no coverage for a tenant that rents a part of your home such as a room or attached apartment
• Neglect: Landlords must keep their properties in good condition and must preserve them at the time of a loss and after it
• Intentional loss: Intentional damage caused by an insured

Depending on the policy, additional coverages may be available for a landlord policy such as coverage for a non-occupied dwelling, rental property under construction, or building code coverage.

Comparing Liability Coverage: Landlord Insurance vs Homeowners Insurance

While there are many differences in homeowners insurance vs landlord insurance, the basic differences lie in whether personal property is covered and who the liability portion of the policy covers.

Premises vs Personal Liabilities

A homeowner’s policy covers both premises and personal liabilities. So, if your cousin breaks their leg while visiting or your child throws a baseball through a neighbor’s window, your homeowners insurance policy will respond to the loss.

On the other hand, landlord insurance policies focus more narrowly on incidents related directly to the rented premises. If a tenant or their guest sustains an injury due to poor maintenance or negligence on the part of the landlord, such as slipping on an icy walkway, the loss falls under the landlord’s liability coverage. The landlord has no liability if the tenant damages someone else’s personal property.

The Importance of Renter’s Insurance

Unfortunately, tenants may not realize the importance of acquiring renter’s insurance, also known as tenant insurance. A landlord property is just as susceptible to fire, wind, or other types of damage as an owner-occupied property is. Landlords aren’t responsible for a tenant’s personal property in the event of a loss at all.

For this reason, it’s a good idea for landlords to inform tenants of risks to them if they opt out of getting tenant insurance.

A good renter’s insurance policy will cover a tenant’s personal belongings within their unit from theft or damage caused by losses like fire or a plumbing leak. Additionally, tenant insurance provides tenants with personal liability coverage for any damages they may cause others while residing at your rental property.

Renters’ insurance can also offer additional living expenses (ALE) which helps pay for a temporary accommodation if their rental becomes uninhabitable due to certain perils covered by their policy which isn’t provided under standard landlord policies.

In essence, having adequate renters’ insurance ensures that both landlord and tenant have proper financial protection against potential losses. The right insurance policies also reduce disputes over who pays what when things go wrong allowing landlords to keep cordial relationships with their tenants.

Loss of Use vs. Loss of Rents

A landlord policy and a homeowners policy provide coverage for circumstances where the property is uninhabitable due to a covered loss. The difference lies in the insurance term and the circumstances regarding the occupancy.

What is loss of use?

Homeowners’ insurance offers loss of use coverage. If your home becomes unlivable due to a covered loss, this part of your policy kicks in to cover additional living expenses incurred while your home undergoes repairs.

For example, loss of use pays for the cost to eat out if you can’t use your kitchen, extra mileage for traveling farther to work, extra laundry expenses, and other costs you wouldn’t have if you could live in your home.

What is loss of rents?

Landlord insurance covers loss of use in a slightly different way. The proper term is fair rental value coverage. The purpose of this coverage is to compensate the landlord if they have a paying tenant and the tenant must move out for a period while the structure is being prepared. In this case, the landlord is entitled to payments for lost rent up to the limit shown on the policy.

Note that this coverage does not apply if the dwelling was not rented at the time of the loss, and it only covers the actual loss of regular rental payments.

Contents Protection: Differences Between Homeowners and Landlord Insurance

Insurance agents typically use an analogy when referring to contents coverage on landlord and homeowners policies. Brokers and agents commonly describe contents coverage by saying, “If you picked up your house and turned it upside down, contents coverage includes everything that would fall out.”

The main difference in contents between a homeowners vs. landlord insurance policy is that a landlord and a tenant may have contents on a tenant-occupied property.

Homeowners Insurance: Comprehensive Contents Coverage

Homeowners insurance is designed to protect everything inside your home – from furniture and appliances down to personal belongings like clothing and electronics. If a covered peril such as fire or theft occurs, this policy will compensate for these items up to your policy limit once you’ve paid your deductible.

Landlord Insurance: Limited Contents Coverage

On the other hand, landlord insurance usually doesn’t cover any furnishings or appliances provided in rented units unless the policy explicitly covers them.

Generally, landlords only have protection for items that are necessary for them to service or maintain a rental property. The following items are excluded from landlord policies:

• Furniture used by tenants even if the landlord purchased it
• Repairs to kitchen appliances supplied with a rental unit
• Cars owned by the tenants

These differences highlight why landlords should encourage their tenants to get renters insurance to cover their personal possessions.

Why You Need Landlord Insurance

Having landlord insurance is essential because it offers protection specifically tailored for rental activities. It covers structural damages caused by fire, windstorms, vandalism, and other perils; loss of rental income if your property becomes uninhabitable due to covered losses; and liability coverage should someone get injured on your rented premise leading to potentially expensive lawsuits.

Navigating the Transition from Homeowner to Landlord

• Step 1: Inform your insurer of property usage change – Once you’ve decided to rent out your dwelling, it’s important to notify your current insurance company immediately. This will help prevent any potential issues that may arise from undisclosed information resulting in a denial of a claim.
• Step 2: Evaluate your existing coverage – Take a look at your current plan and assess what is covered and what isn’t. Then, based on your new role as a landlord, determine any additional protections needed. Your insurance agent will help you choose the most appropriate coverages.
• Step 3: Purchase an appropriate landlord policy – If necessary, switch to a specific product that better suits your needs. Consult with a professional broker or agent who can guide you through the many options available in today’s market. Remember that the cheapest option may not always be the best choice. Seek out comprehensive coverage that provides peace of mind knowing you’re well-protected should unforeseen circumstances arise while managing investment properties.

What happens if you rent a property out for a short term and the tenant extends the lease agreement over and over? This is called being an accidental landlord, and it’s important to have the proper property coverage in this situation.

The Importance of Landlord Insurance for Long-Term Rentals and Accidental Landlords

Property owners need to be aware that a homeowners insurance policy will not cover regular or long-term rentals.

Here are some of the situations that can cause an accidental landlord situation:

• You can’t sell your home and decide to rent it out
• You inherit a property and decide to rent it
• A short-term tenant keeps requesting to extend the lease.

The standard homeowner’s policy is designed for owner-occupied dwellings only. Any time you rent your home out, it increases the risk profile of the property. Your tenant could cause damage or neglect maintenance issues that a resident homeowner would address. There may also be increased liability risks associated with tenants such as injuries occurring on the premises that could lead to legal disputes and claims against a landlord. These are significant reasons to get the right coverage for a landlord property.

 

Cost-Cutting Tips for Homeowners and Landlords Insurance

While comprehensive coverage should always be a priority over finding cheap insurance, there are ways to keep your insurance premiums lower by taking great care of your property. Regular maintenance, legally permitted tenant screening, and safety measures (e.g. central fire and burglar alarm systems) can all help reduce costs.

Maintain Your Property

A well-kept residence is less prone to damage, resulting in fewer claims and lower premiums. Keep your property in good condition by cleaning gutters, checking for leaks, inspecting railings, and updating electrical systems.

Screen Your Tenants

Bad tenants can lead to non-payment of rent or property damage, which can increase claims and raise premiums. Conduct credit checks and references to ensure you’re renting to responsible tenants. Most important, make sure to use a highly reputable property manager to assist in any checks to make sure that you are fully compliant with all applicable laws and regulations.

Consider Your Deductible

Raising your deductible can lower your premiums, but make sure you can cover the increased deductible in case of a disaster. Learn more about how deductibles work from Investopedia.

Implement Safety Measures

Installing safety measures like smoke detectors and burglar alarms can protect your tenants and reduce the chances of major damages, potentially leading to lower premiums. Learn more about home safety at the National Fire Protection Association.

FAQs: Landlord Insurance vs Homeowners Insurance

What’s the difference between home and rental insurance?

Homeowners insurance provides coverage for the home, personal liability, and loss of use. On the other hand, landlord insurance is designed to protect the physical structure of a rental property, loss of rental income, and liability related to the property itself.

Is property insurance the same as homeowners insurance?

No. Property insurance is broader and covers various types of properties like commercial buildings, while homeowners’ insurance is specifically designed for owner-occupied residential properties.

What are the similarities and differences between renters’ and homeowners’ insurance?

Both provide liability coverage, but renters insurance does not include protection for the physical structure of the dwelling, which is a feature of homeowners insurance.

Why are premiums for landlord insurance more expensive than homeowner’s insurance?

As it pertains to landlord insurance vs homeowners, landlord insurance premiums are typically higher because the risks are higher. In general, homeowners tend to maintain their homes more diligently and address potential hazards more promptly than tenants.

Do I need homeowners or landlord insurance?

Homeowners insurance is structured for individuals who own and live in their own personal homes, while landlord insurance is designed for companies or individuals who own rental properties.

Conclusion

Home insurance is designed to protect your home and personal belongings from damage caused by events such as hailstorms, windstorms, fire, or lightning. It also provides personal liability coverage for losses related to the dwelling and potentially those beyond the property itself. Home insurance policies also include loss-of-use coverage that offers financial assistance if you are unable to live in your home due to a covered loss.  On the other hand, landlord insurance does not provide loss-of-use coverage since tenants are responsible for finding temporary accommodations during covered losses. However, this type of insurance does offer loss-of-rental income protection that compensates landlords for some, or all, of the rent that would have been received before a tenant was required to vacate the rental premises due to repairs or rebuilding after a covered loss. And, unlike homeowners policies, rental home insurance typically doesn’t cover the contents or personal belongings of tenants as they need their own renter’s insurance coverage. Lastly, landlord insurance liability protection is more limited in scope because it typically only extends to events related to the premises and not beyond. 

Most important, to analyze all of the important differences seek the help of a licensed insurance professional who can assist you when you make the important decision of homeowners insurance vs landlord insurance! 

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It may be helpful to know when this article “Landlord Insurance vs. Homeowners Insurance” was last updated: October 14, 2023

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