Landlord Insurance vs Homeowners Insurance: Which One Is Best for You?

Deciding between homeowner’s insurance and landlord insurance can be challenging. Here’s what you need to know to make an informed decision about which insurance policy to get.

By
Vivian Tejada
|
Last Updated
November 8, 2023
Landlord Insurance vs Homeowners Insurance: Which One Is Best for You?

Investing in rental properties is a great way to generate passive income. However, real estate investment comes with inherent risks, making homeowners insurance necessary. New investors may not know, for example, that homeowners insurance only protects owner-occupied properties. This means that to grow your rental business, you’ll need to protect your investment properties with landlord insurance.

In this blog, we’ll break down the key differences between homeowners and landlord insurance, discuss ways to save money, and help you decide which policy makes the most sense for your rental business. 

What is the difference between landlord insurance and homeowners insurance?

Both homeowners insurance and landlord insurance provide property owners with coverage for their real estate properties. The key difference between the two is that homeowners insurance covers the homeowner's primary residence, while landlord insurance covers tenant-occupied properties.

An owner-occupied home, such as a single-family home with an in-law unit or a multifamily home in which a landlord lives in one of the units, can be covered with homeowners insurance alone. However, as soon as the homeowner moves out, it is no longer an owner-occupied unit and therefore not covered under the homeowner’s insurance. 

Landlord insurance provides property owners with additional coverage for liability and damages caused by their residents. If you own properties that you don't live in, you’ll need insurance for your primary residence and for your rental property. 

Differences in coverage

Generally, landlord insurance covers more than homeowners insurance. However, depending on where your rental property is located, you may need additional insurance, such as flood or earthquake coverage. It’s important to read the fine print before purchasing any type of insurance to make sure all of your properties are adequately insured. Here are three key factors worth paying attention to when evaluating how homeowners insurance compares to landlord insurance:

1. Loss-of-use coverage vs. loss-of-rent coverage

Both homeowners insurance and landlord insurance cover a property owner’s mortgage payments when their property becomes unlivable due to repairs. However, the coverage differs slightly between the two policies. 

Homeowners insurance typically encompasses loss-of-use coverage, which pays for a property owner’s living expenses and meals while their home undergoes major renovations.

Landlord insurance entails loss-of-rent coverage, which provides the property owner with the rental income lost while the rental property undergoes major renovations.

To qualify for coverage under either of these policies, the property damage must be extensive, meaning that the resident of the unit would be required to move out while the necessary repairs are completed. Some landlord insurance policies also provide loss-of-rent coverage when tenants simply don’t pay. These kinds of policies are especially useful in states where it’s difficult to remove a non-paying tenant from your rental property. 

2. Personal property coverage

Homeowners insurance normally comes with personal property coverage, which covers personal items such as clothes, shoes, furniture, and other valuables. Landlord insurance doesn’t usually cover personal belongings, since the items in the rental don't belong to the landlord. The exception to this would be if you have a furnished rental, such as a short-term or mid-term Airbnb. In this case, any furniture or decorations you purchased to stage or furnish your property would be covered.

3. Liability coverage

Last but certainly not least, let's discuss liability coverage. If a tenant were to trip and fall over uneven pavement in the driveway or burn themselves on an old stove, the property owner could be held liable. Homeowners insurance offers some liability coverage but only on your primary residence. Liability coverage landlord insurance can come in handy in case one of your tenants or their guests suffer injuries on your rental property. 

How much does landlord insurance vs homeowners insurance cost?

The average homeowners insurance policy costs $2,777 per year. At first glance, this may seem like an unnecessary expense, but in the case of an emergency, it could save you thousands of dollars. As a result, most homeowners end up biting the bullet and paying for homeowner’s insurance. 

Landlord insurance costs about 25% more than homeowners insurance. While this may give landlords pause, landlord insurance is equally, if not more important, than homeowner’s insurance. As mentioned above, homeowners insurance policies only cover your primary residence, which would leave your rental properties unprotected if a tenant suddenly stopped paying rent, significantly damaged the property, or sustained a major injury on the premises. 

How to lower the cost of landlord insurance

It’s always better to have landlord insurance in place just in case than to wish you had it once tragedy strikes. However, depending on the landlord policy you choose, it could place a significant financial burden on you as a property owner. Thankfully, there are ways to save money on the landlord insurance cost. Take a look at some of these strategies below:

Conduct regular maintenance

Homes that receive routine maintenance sustain fewer insurance claims than homes that don't. An insurance company is more likely to offer a lower price on a policy for a home with fewer claims. As a result, you could lower your insurance costs by conducting regular maintenance checks that detect property issues early on. 

Require renters insurance

By requiring tenants to obtain renter's insurance, you can transfer some of the cost of insurance away from you and onto the tenant. Renter’s insurance provides coverage for a tenant’s personal property as well as liability coverage if they or their guests are injured on your property. While this doesn’t eliminate the need for you to purchase landlord insurance, it could help you secure a less expensive policy.

Prohibit smoking

Aside from giving your property an unpleasant smell, regular smoking also increases the risk of property damage and personal injury. It’s a good idea to prohibit smoking in your rental agreements and implement a fine if tenants violate this clause.

How to decide between homeowners insurance and landlord insurance

Property owners with more than one home to their name should have both a homeowners insurance policy and a landlord insurance policy. However, renting scenarios are not always clear-cut. Below, we've laid out three common situations in which property owners tend to find themselves:

1. Renting out an entire residence

Homeowners can become temporary landlords when they decide to move out of their primary residence and go live somewhere else for a period of time. Although the home remains yours while you're away, we recommend landlord insurance in any circumstances where your property gets rented out to a third party.

2. Short-term rentals

To host a short-term rental throughout the year, you'd need to have landlord insurance. However, if you’re hosting one just for the summer, you might feel a bit more reluctant to purchase an annual landlord insurance policy, as you'll only need it for one season. Luckily, short-term insurance is available for landlords who only rent out their spaces for short periods of time. 

3. Renting out a room in your primary residence

Lastly, if you’re just dipping your toes in the water as a landlord by renting out a room in your home, landlord insurance may not be necessary. Homeowner’s insurance covers your primary residence as well as everything within your primary residence home, including its tenants. 

The bottom line on homeowners and landlord insurance

Homeowners insurance is vital to protect your primary residence, providing you with coverage for your personal items, as well as some liability protection. However, as you acquire more rental properties, it's important to protect your investments. Landlord insurance does exactly that by covering legal fees, offering loss-of-rent coverage, and enhancing your liability protection.

While landlord insurance may seem like an added expense, it's certainly worth considering. Landlord insurance costs a bit more than homeowners insurance, but it offers much-needed protection to your rental business. To mitigate the costs of landlord insurance, property owners should schedule regular maintenance checks, require renters to obtain their own insurance and prohibit smoking on the premises. For rental owners with multiple properties, having both types of insurance is strongly advised. 

Vivian Tejada

Vivian is a freelance real estate writer based in Brooklyn, NYC providing SEO blogging services to real estate companies. Her work focuses on educating first-time real estate investors on investment strategy and explaining proptech tools to new customers.

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