The 6 Most Important Clauses in a Landlord Insurance Policy

Written on November 13, 2013 by , updated on April 10, 2018

Landlord InsuranceNot all insurance policies are created equal.  In this article, I will discuss the key attributes of a quality Landlord Home Insurance Policy.

Standard property insurance policies assume that the homeowner lives in the property.

Landlords, on the other hand, rarely ever live in their rentals and therefore need a different type of policy – a Landlord Insurance Policy.

In fact, most landlords don’t realize that if they file an insurance claim on a rental, but the policy is NOT listed as a Landlord Policy, the insurer can deny the claim – no ifs, ands, or buts about it.

If your home insurance is not recorded as a Landlord Policy, the insurer can deny the claim.

Did you catch that?  They don’t have to pay!

Why the Difference?

It’s simple really… because there are different risks involved with rentals vs. homeowner occupied properties.

Landlord policies account for typical issues that a landlord might have – such as “loss of rent”.

It also fits under a different pricing structure with the insurance company – and thus the main reason they want to know about your rental.

It’s Easy to Forget…

When people are forced to move, but don’t want to sell their house, the logical solution is to rent it out and become a landlord.

It’s easy to forget to tell your home insurance carrier that you’ve moved, after all, the property is still the same. It’s natural to ask yourself “Why does it matter who is living there if I still own it?”

The fact is, that in order for your existing home insurance policy to fully cover the property, you need to inform your insurance carrier that the property is being converted to a rental, and you are not occupying it as your primary residence.

Your insurance company will then label it as a “Landlord Policy”, and ask you a few questions about the amount of coverage that you might need.

Always Be Prepared

Always Be Prepared

Always Be Prepared

Being a landlord can be a great way to make a living, but it is so very important that you make sure you’re completely covered if something goes wrong – even if the chances are remote.

It’s essential to have the proper insurance policy in order to keep you from unnecessarily losing money or assets that may be impossible to recoup.

Listed below are the most important clauses that you need to consider when creating/converting your Landlord policy.

6 Critical Clauses in a Landlord Policy

1. Dwelling Coverage w/ “Guaranteed Replacement Cost”

Fire Damage

Fire Damage

Dwelling coverage is most basic type of home insurance, and if you don’t own your property outright, your lender will probably force you to have this type of coverage.

Dwelling coverage insures just that, the dwelling. It will protect you against financial costs related to structural damage of your property.

This typically covers structural issues, plumbing and gas systems, fixed appliances, cables and piping, internal fixtures and fittings, and outdoor items like exterior blinds and awnings.

However, you should also consider getting “Guaranteed Replacement Cost” coverage – which will pay to replace/rebuild the property, even if the cost of building materials exceed the amount you were originally insured for.

Dave Ramsey says:

“Several years ago, a lot of the major insurance companies quit offering guaranteed replacement cost insurance—a policy in which your home is replaced no matter what it costs.”

You just have to shop around. Without guaranteed replacement insurance, you will only be covered for the value of your home at the time you took out the policy – which doesn’t always cover the cost to replace it.

2. Water/Flood Coverage

Hurricane Katrina caused some of the worst flooding in US history.

Hurricane Katrina caused some of the worst flooding in US history.

Water and/or Flood Insurance is typically an extra policy which is added to your base policy.

It covers water damage to the building or anything inside is the property. Most basic dwelling policies will cover broken pipes or water heaters, but the extra flood policy is needed in order to cover floods, rains, sewer backups, water issues from natural disasters, etc.

Prices and rates are regulated by the U.S. Government’s National Flood Insurance Program, therefore the cost will be the same no matter who the insurer is.

It’s also a great policy to have if your tenant decides to put a hot tub in the living room.

3. Personal Property Protection (Contents)

Your furnishings need to be insured

Your furnishings need to be insured

Personal property coverage is essential if you’re renting a furnished apartment, but many landlords prefer to have it even if they rent empty units. Contents coverage typically protects you against damage to carpets, curtains, furniture, domestic appliances, household goods, and light fixtures.

While some landlords choose to have contents coverage, not all do. You’ll need to weigh the potential benefit of having the insurance against the monthly cost of the added coverage to know if it’s right for you.

4. Acts of Nature

Tornado Alley

Tornado Alley

Acts of nature include tornadoes, hurricanes, earthquakes, and even riots.

Although some types of insurance may not include all types of coverage – tornado insurance is not something you need in California, but it is absolutely necessary in Kansas.

In some cases, this clause is not included by default and you have to ask for it.

Again, you really have to weigh the pros and cons of each add-on, for example, hurricane insurance is so expensive in Florida, sometimes it’s cheaper to rebuild your house out of pocket than carry an hurricane insurance policy.

5. Fair Rental Income Protection       

roll of money

Your recurring rental income is one of your most valuable assets

Rental default insurance, sometimes known as loss of income, is a type of insurance that allows you to collect the rental amount of the property for a certain length of time if you are unable to do so because of repairs or a catastrophe.

However, most standard Landlord policies won’t cover the lost rent due to an eviction or dead-beat tenants.  The coverage works in conjunction with a damage claim that makes the property uninhabitable.

Allstate’s policy says:

If your rental property becomes uninhabitable due to a covered loss, Allstate Fair Rental Income Coverage can help pay you the rental income you would otherwise lose. In other words, if your tenants have to move out, Fair Rental Income could keep the rental income flowing in for up to 12 months, while the unit is being repaired or rebuilt.

Loss of income insurance might seem like a great deal at first, but it’s important to determine how much your premium will go up for this coverage, and that you weigh the benefits.

If you can self-insure, and can live without rental income for a month or two, paying for years of loss of income coverage may not be a wise financial decision.

6. Legal / Liability / Medical Coverage

Broken bones usually equal lawsuits

Broken bones usually equal lawsuits

If a tenant or employee – even a contractor working on a part-time basis – sues you for damages, legal and liability coverage can keep you from having to go out-of-pocket. This is generally coverage that every landlord should have, as it’s easy to build up huge legal fees or be forced to pay large settlements for things that are largely out of your control.

As with any policy, this coverage has its limits.  If you have multiple rental properties, then you might want to consider getting an Umbrella Policy to cover you and your personal assets if a liability claim goes beyond the limits of your landlord policy.

Most of the time, lenders will require that you have liability coverage, in order to protect their investment/loan.

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138 CommentsLeave a Comment

  • Sam

    Hi Lucas: if tenant signed 1 yr lease with 1/2 annual payment upfront and the rest due after 4 months. Can he be evicted (by due process) for delinquent on second payment in California? There’s little hope he will pay due to prior eviction and poor credit history. Thanks, Chris

  • Mary

    The tenants caused a fire and desroyed the single family house. I have a landlord policy and an endorsement for loss of rents. How does the company decide how many month to pay me in the claim? The day I met the claims adjuster at the sight, he said right away that he would give me four months rent. I would like to know how did he decide it was four months and not six months.

    • Norma

      It depends on the endorsement you have on the policy, however it is likely based on the estimated time for repairs of your property. Hope that helps.

  • MG

    I just entered into a Lease and Option to Purchase contract AND Lot Rental Agreement. Landlord/Owner has about 20 other manufactured homes in his park with same agreements.

    My L/OP states that I must pay rent for 9 years before the Option is available or pay off the equivelent of 9 years @ $525/mo to pay off early. Tentants/Buyers are required to make all repairs (water heater, furnace/AC, plumbing, etc.) at their own expense AND carry homeowners insurance listing the landlord as the payee AND pay personal property taxes on our respective MHs. I paid $5K down, but others all paid first, last and security.

    My questions are: Where’s the line between being Lessee and Home buyer? Are we tentants or buyers? What are LLs liabilities?

  • Christine

    Great information ! Thanks

  • Jonathan

    I have a summer rental home in a beach community and it is rented typically weekly by families with kids or occasionally just a couple. I am reviewing my insurance focusing on medical coverage and liability and would like any guidance on coverage amounts you can pass along. There are stairs in the 2 story house and off the back a large raised sun deck and so I am thinking possible tripping and possible broken bones as the worse case. Of course what if they start a house fire or get burned with lighter fluid while lighting the outdoor grill. If there is an injury do renters sue for medical costs or go to liability and if so what can that include / cover?
    Thanks

  • Karen Anderson

    Hi – I hope you can answer this. Can you take out landlord protection insurance when you rent to your son? I’m wondering if that is an automatic exclusion or if there are extra premiums when you rent to a close relative. Thank you!

    • debbie

      Yes, even when renting to close relatives you MUST report the property as a Rental. I have a home i rent out to my daughter and I tried to keep it as a homeowners policy but the company refused even though I told them I would be staying there at times with my daughter staying there full time.
      It doesn’t matter the relationship if you are not living there as your PRIMARY residence, and your son is living there full time, then it is a rental.
      I would contact the insurance company to follow through on your question as I am not in any way an insurance agent or adjuster but am only relaying my own personal experience on this matter.

  • Garth Gallocker

    I have used same broker for over 20 years for car and homeowner insurance,now live out of the country for last 4 years,
    In 2015 the tenant had a burst pipe and a blocked toilet and so had to claim twice,now broker is saying no insurance company will insure me except one….price went from $675 a year with $1000 deductible to $3000 a year and $10000 deductible ….is this legal? Should I just shop around or will they all be the same

  • xx

    a friend rented her place out and forgot to inform the insurer of the exposure switching from “homeowner” to “landlord/rental”. tenant hasn’t paid rent ever since they moved in. now the place is burned from a fire incident (cause unknown), what’s the chance of coverage, and should insurer denies, what recommendation do you have to dispute against the insurer?

  • Shar

    I was renting an apartment above a business in Michigan (both were rental units). The business forgot to turn something off causing a fire below my apartment which caused my belongings to be damaged by the smoke and water from putting out the fire. The business owner did not have any rental insurance and now the landlord is forcing us to remove all of our belongings or they will be thrown out. It has been less than a month since the fire and he has been seen going in and out of the apartments. Since I did not have renters insurance and he did not require the business owner to carry insurance who is responsible for my damages?

  • Nesh

    How do I deal with a slab leak in a rental condo where the damage is substantial enough to make me ask tenant to leave while work is done? It is from hotwater heater in property when I bought it at foreclosure? Should I call insurance for just tell tenant to leave and I give credit for days not living in condo.

  • Donna

    In 2015, I had an accidental charcoal grill fire that caused bushes to burn and some siding. Manager said it was an accident don’t worry about it. Two and I have leases later, I was given a bill for $1400 from the grill fire in 2015. Shouldn’t I have been given this bill the year that it happened? And why was I given the bill after signing another lease and a six-month lease? It was paid by the owners of the property. Why was I given the bill 2 and a half years later and signing 2 more leases? Am I responsible

  • Marcus

    What about additional premises liability?

    • Lucas Hall

      Hi Marcus,

      Wouldn’t that follow under general liability insurance for the property? I guess I’m not sure what you mean by “additional premise” – like another lot with a different address?

      • Marcus

        I believe it would be considered an umbrella policy that would cover any remaining accident that could potentially occur on your premises.

  • Sunny

    Endorsements-What does 2-969 & 137 & DP 0121 of a hastings mutual ins rental property mean?
    PO#DF 9965267

  • Dean Remillard

    Am I required to get landlord insurance when I am renting out the basement of my primary residence long-term? We just converted from short-term vacation rental to long-term yearly-lease rental for our basement. Thanks in advance for any insights!

  • Jonathan

    I would like to ask a question about a different problem. What is the best approach when a landlord has a new tenant who seems to find issues each month. The latest is the tenant feels the electric bill is way out of line and is looking for either a reduction in rent and or maybe go as far as breaking the lease. Of course a landlord can not set the thermostat or restrict how many laundry loads but the HVAC system was checked out to see if there might be a problem. So how can a landlord protect the lease as written.

    Thanks
    JF

  • Kitty Louden

    Hello, I hope someone can help me.
    I have owned a rental home for almost 15 years with the same insurance agent And not one single claim. But, Almost a year ago, a heavy snowstorm caused the detached garage to collapsed. My agent said it wasn’t covered. Even though it will cost me to haul it off and rebuild. Then, months later, the renter trashed the place, Owed two months rent, and disappeared. The worst trash out and filth I’ve seen . So it was time to really do an overhaul anyway, but…preparing while preparing to replace a few Cracked tiles in the bath room I realized the whole floor was completely soaked, With the consistency of peanut butter down throughout the subfloor, and black mold inside all the walls. Again, insurance a

  • Deborah

    Hi, we are trying to rent a home and the landlord wants us to carry an umbrella policy of one million dollars. My question is what are the qualifications and is it hard to get one and what should the highest amount we should be looking at?

  • Becky

    In Ohio state farm dropped their coverage for water damage from rain flooding my basement. I learned this the hard way when a flash flood came through and flooded my rental basement. Over $4k in damages were not covered. I am looking to see if I can find a policy to change over to using.

  • joe mira

    Do I have to claim lost rent paid to me from an insurance co as rental income?

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