Homeowners insurance may seem like it will cover your rental property. Many insurers let you rent your home and keep the same policy, which is why this misconception is so common. But that logic could leave you vulnerable to coverage gaps and unpaid claims if your insurance does not automatically convert.
The Purpose of Each Policy
Homeowners insurance covers your primary residence, personal belongings, and liability as a homeowner and occupant. Living expense coverage is also included to pay for housing costs if your home is damaged by a covered peril and you must live elsewhere temporarily.
Landlord insurance is a specialized policy designed for rental properties. It assumes tenants occupy the home and you do not, so coverage reflects that risk. Building protection, legal liability as a landlord, and loss of rental income are key components of landlord coverage.
Most standard homeowners policies will not cover a property once it is rented for a period of time.
Occupancy Matters More Than Ownership
Ownership is not the determining factor when choosing a property insurance policy. You can own the home and be completely uninsured if you do not have the right policy for how you use the property. Homeowners policies are structured around the risk of the home being owner-occupied.
Tenants change that equation because they increase liability potential, property wear and tear, and severity of losses. Risk is priced accordingly on a landlord policy, which often results in higher premiums.
Property Coverage Differences
Homeowners insurance covers the dwelling and personal property inside the home. Personal property coverage applies to belongings you own throughout your house, including furnishings, electronics, appliances, clothes, jewelry, and more.
Landlord insurance covers the building and your personal property used for tenant purposes. This includes appliances or furnishings you own and leave in the rental unit. It does not cover tenant property. That is why landlords require renters insurance while under their lease.
Replacement cost coverage for the dwelling place is available with landlord insurance, as it is with homeowners insurance. Keep in mind that landlords may have a harder time getting older properties or multi-unit buildings insured without solid maintenance and inspection records.
Rental Income vs Living Expenses
Loss of use is treated very differently under homeowners’ and landlord policies. Homeowners’ policies will pay for additional living expenses to help you maintain your standard of living if you can no longer live in your home. The coverage follows you until your home is repaired or replaced.
For landlords, lost rental income is payable when a tenant cannot live there due to damage by an insured peril. Since landlords do not live in the rental property, living expenses are not an issue.
This coverage may be listed as fair rental value or loss of rents on your policy. The insurance will research rental history to determine how much income you would typically collect each month. Payments will continue for a reasonable repair period.
Living expenses are not covered under landlord insurance, even if you temporarily live in the rental home.
Liability Exposure and Legal Risk
Liability risk is much greater with tenants in the home. Landlords have legal responsibilities to tenants, which include maintaining a safe environment and providing habitable housing. Failure to do so can result in tenant injury, large liability claims, and financial loss.
Premises liability coverage is included in landlord insurance policies to account for tenant-specific liability. Many landlords also purchase umbrella insurance to further extend liability limits.
Homeowners insurance policies also have personal liability coverage, but it might not apply if you rent the property.
“There are several reasons insurance claims can be denied, but one of the most common claim problems we see involves landlords who thought they were covered by their homeowners policy.” – Bowthorpe & Associates Insurance Producers
Exclusions and Endorsements
Vacancy is a major exclusion on landlord policies that is not commonly found on homeowners insurance. If your rental unit becomes vacant for more than 30-60 days, your policy could be suspended until tenants move in again. You can add a vacancy endorsement to prevent suspended coverage.
Damage caused by tenants, normal wear and tear, and lost rent due to tenant default are excluded from landlord policies. Rent guarantee and tenant default coverage is available from some insurers, but those endorsements have strict underwriting requirements.
Flood and earthquake are not covered by either homeowners or landlord insurance and must be purchased separately if needed.
Cost Considerations
Because landlord insurance covers tenant losses and loss of rental income, the policy cost is usually higher than homeowners insurance. The increased liability exposure and risk of tenants negatively impacts premium pricing.
Deductibles, claims history, condition of the property, and number of units are other factors that influence how much you pay for landlord insurance. Higher deductibles will result in lower premiums, but be sure you can afford to cover repairs and damages on your own. Filing small claims could impact your future ability to purchase insurance.
Choosing the Right Policy
Whether you need landlord insurance or homeowners insurance depends on who lives in the property. If you live there, buy homeowners insurance. If tenants live there, purchase landlord insurance.
Short-term rentals may require additional endorsements or even a separate policy. Furnished rentals and multi-family complexes have unique risks that might not be covered with a standard landlord policy.
Review limits carefully for dwelling damage, liability, loss of rent, and how long you can go without rental income. Understand the vacancy rules and common exclusions. Update your policy as rental terms change, tenants change, or if you begin charging more rent.
Final Thoughts
Renting your home does not automatically invalidate your homeowners insurance policy. But relying on a policy that no longer covers your rental activity is a risk you should not take. Consult with an experienced agent to learn how your insurance should change when you rent your home.
Frequently Asked Questions
Q1: What is the main difference between landlord insurance and homeowners insurance?
A: Homeowners insurance covers people who live in their house and own belongings inside the home. Landlord insurance is intended for rental properties only and covers building protection, liability, and lost rental income.
Q2: Can I keep my homeowners policy if I rent out my house?
A: Homeowners policies do not cover rental properties for an extended period of time. Call your insurer before renting out your home and switch to landlord insurance.
Q3: Does landlord insurance cover tenant belongings?
A: Landlords are not responsible for tenant property, which is why renters insurance is required for tenants. Landlord insurance does not cover tenant belongings.
Q4: Is landlord insurance more expensive than homeowners insurance?
A: Yes, typically. Since rental properties have higher liability exposure and insurance must cover tenant losses, landlord insurance costs more than homeowner’s insurance.
Q5: Do I need landlord insurance for short-term rentals?
A: Short-term rentals require endorsements or a separate policy. Talk to your agent to learn what is needed to cover short-term rental activity.