What is Landlord Insurance? What Rental Property Owners Need to Know

Your neighbor trips on your front porch during a BBQ and breaks their leg. A tenant accidentally drops a cigarette and burns a hole in the couch you provided to the unit, requiring a repair. A hailstorm damages your roof, causing a leak that requires putting your tenants in a hotel for a week. 

Of course, no rental property owner wants to experience any of the above scenarios. But the truth is, events like these can’t always be avoided. That’s exactly why landlord insurance exists. 

Whether you're a seasoned rental property owner or a first-time investor, landlord insurance is essential. Here, we'll break down what it is, why you need it — and how to ensure you get the right coverage at the right price. 

What is landlord insurance? 

Simply put, landlord insurance serves to protect your investment in rental properties — this way, you won’t have to pay out of pocket if something bad happens, such as property damage or injury. 

While homeowners insurance covers personal residences (policyholders typically reside on-site at least part of the time), landlord insurance covers rental properties primarily occupied by tenants. 

Today, most mortgage providers require insurance for landlords to secure a loan. Even if you own your house outright (i.e., you purchased it in cash without a loan), it's still a good idea to get landlord insurance and protect yourself against financial loss.

How much does landlord insurance cost? 

Landlord insurance typically costs about 25% more than homeowners insurance. According to NerdWallet, the average cost of homeowners insurance in the U.S. is about $1,820  a year. This would mean the average landlord premium is approximately $2,275 a year.

That said, real estate investors can save up to 25% on their landlord insurance premiums with Azibo. Your premium will depend on several factors, including geographic location, property condition, and claims history. It also depends on a few factors generally in your control, such as your desired coverage and deductible. 

Take geographic location, for instance. Every place in the world has exposure to some type of catastrophe, but some areas are more prone to certain types. Brush and forest fires are more common in the West, while hurricane exposure is greater in areas near the Gulf of Mexico and the Atlantic Ocean.

The highest likelihood of damage from tornadoes can be found in the heart of the Central and Southwestern United States. However, it's worth noting that tornadoes can whirl their way into nearly any state. As for earthquakes, no region is exempt. The entire country has seismic fault lines running through it, meaning an earthquake could potentially shake things up anywhere.

Of course, locations with higher incidences of natural disasters will have a higher premium — but don’t let pricing deter you from properly insuring your rental properties. In 2022 alone, natural disasters cost the U.S. $165.1 billion in damage. As a landlord, you have two options: Prepare for the worst with comprehensive coverage, or pay out of pocket if disaster does strike. 

What does landlord insurance cover?

Most standard landlord insurance policies include property and liability protection and additional coverages catering to specific scenarios. Property protection can help cover the costs of property damage caused by events like fire, lightning, explosion, hail, or vandalism. Meanwhile, liability protection can cover legal, medical, and settlement expenses in the event that a guest gets injured on your rental property. 

On top of that, the average landlord insurance policy can also provide coverage for additional structural damage (e.g., to fences, sheds, or unattached garages), damage to the landlord's personal property (e.g., to furniture, art, or stored items), smoke damage, vehicular property damage, water and sewer backups, and even loss of rent if your property becomes uninhabitable due to damage.

The five main property coverages for a landlord policy include: 

• Dwelling (the actual structure, not the land)
• Other Structures (fences, sheds, gazebos, unattached garages, etc.)
• Personal property (of the landlord, not the renter)
• Loss of rents 
• Additional living expenses (costs of putting your tenants up in a hotel or boarding animals if the dwelling is uninhabitable)

For liability coverages, there are two primary types: 

• Liability (which covers the legal liability of the insured for costs of bodily injury and property damage)
• Medical payments to others (including coverage for medical bills of others)

Additional landlord insurance policies to consider

You may assume your policy covers earthquakes and floods automatically, but it doesn't! You must purchase separate policies in addition to your property and liability coverage. In fact, based on your location, weather, and bank requirements, you might consider purchasing these additional landlord insurance policies: 

• Earthquake insurance: In California, home insurance companies are legally required to also offer earthquake coverage — and for a good reason, considering over 100 earthquake strikes every day in the Golden State. If your rental property is near an area prone to earthquakes, keep this insurance policy on your radar to protect against potential property damage.
• Flood insurance: 90% of all-natural disasters in the U.S. involve flooding — and according to the Federal Emergency Management Agency, just one inch of floodwater can cause up to $25,000 in damage. Given these statistics, it’s no wonder many landlords get flood insurance policies to prevent financial loss. Learn more about flood insurance. 
• Wildfire insurance: In states like California, Oregon, Nevada, and Washington, the escalating risk of wildfires makes wildfire insurance for rental properties not just an option but a necessity. Considering the surge in the number of fires and acres burned annually, it's crucial to have this insurance policy, especially if your rental property is situated in a wildfire-prone area. 
• Loss of rent insurance: Rental property owners often face rent loss when a property becomes uninhabitable due to disasters, accidents, or tenant negligence. Having loss of rent insurance is a viable solution, ensuring continued income even during forced vacancies. Particularly valuable for independent landlords, this insurance coverage is a key strategy to mitigate the financial impact of unexpected property damage.
• Umbrella insurance: Unpredictable incidents can exceed the coverage limits of your primary landlord insurance policy, and that's where umbrella insurance comes in. Providing an additional layer of liability protection, this insurance covers costs resulting from severe accidents on your property or associated with your assets and even scenarios not covered by your primary policy. It's an affordable way to avoid potentially catastrophic financial blows, particularly useful for landlords with a growing portfolio. 
• Terrorism insurance: In the wake of the 9/11 attacks — which caused over $27 million in insured property loss — Congress introduced the Terrorism Risk Insurance Act, requiring all U.S. insurance companies that offer property and casualty coverage to also offer terrorism insurance. According to a report by the United Nations, urban centers are particularly vulnerable to terrorist attacks due to factors such as high population density, critical infrastructure, and symbolic targets.

Beyond exploring these policies, landlords can also protect themselves — and avoid potential liability claims — by requiring that tenants purchase their own renters insurance.

State-specific additional insights

When it comes to landlord insurance, each state presents its own set of considerations and factors that can impact coverage options and premiums. Here are some insights specific to different states to keep in mind when securing landlord insurance:

• California: Property owners must consider the risks of wildfires and earthquakes in California. Properties located in high-risk wildfire areas may require additional coverage or specialized policies. Earthquake insurance is crucial in certain regions. The state's high property and living costs contribute to higher insurance premiums, making exploring options like policy bundling and implementing safety measures to mitigate risks important.
• Florida: Florida's unique geography and vulnerability to hurricanes, storms, and flooding make landlord insurance particularly important in the state. Weather-related property damage, theft, and burglary risks are significant concerns. 
• Illinois: Illinois landlords face potential risks from extreme weather conditions, such as heavy snowfall, hailstorms, and tornadoes. These weather events can result in significant property damage. Densely populated areas like Chicago may have higher crime rates, emphasizing the need for coverage against theft and vandalism.
• New York: Rental property owners in New York should be aware of the high population density and potential risks associated with urban areas. They may have higher incidents of theft, vandalism, and liability claims. In addition, coastal properties face increased exposure to hurricanes and flooding. 
• Pennsylvania: Pennsylvania's weather patterns, including severe rain, snowstorms, and hurricanes, require landlords to prioritize property maintenance and repairs. The state's older buildings may also require additional upkeep. Rural areas may have mine subsidence risks, and flood insurance should be considered due to groundwater levels. Adequate theft, vandalism, and liability coverage are crucial, especially in highly populated cities like Philadelphia and Pittsburgh.
• Texas: Texas experiences diverse weather patterns, including hurricanes, tornadoes, and severe storms. Landlords should ensure their insurance policies provide sufficient coverage for these weather-related hazards. Certain areas may have a history of sinkholes and underground movement, requiring special attention.

By taking these state-specific insights into account, real estate investors can ensure they have tailored insurance coverage that addresses their particular state's unique risks and challenges. Collaborating with specialized insurance agents and implementing strategies to lower premiums can help protect rental properties while minimizing financial burdens.

How to choose the right landlord insurance coverage

While some states and zip codes require minimum coverage or certain policies, for many landlords, choosing insurance is up to your preferences. With so many insurance carriers, plans, and policies, it can take time to determine which is right for your rental business. Here are five simple steps for getting started:

1. Build trust with your agent 

After you share property information with a national agency or direct carrier, an insurance agent will create a personalized quote package and recommendation. From there, you'll work together to customize the quote to your specific needs. During this process, transparency and trust are paramount. Be sure to keep clear lines of communication, asking questions as they arise so your agent can steer you toward the best plan possible for your rental business. 

2. Consider your risk tolerance 

When weighing different coverage options, it's essential to ask: What makes the most financial sense for me? For instance, some rental property owners may choose a high-deductible plan — saving on your premium upfront but paying more out of pocket if something bad happens to their property down the line. In contrast, other landlords may opt for a low-deductible plan — getting more coverage but paying higher premiums in the process. 

3. Evaluate the property and tenant type

The specifics of your rental property and the type of tenants you host can significantly impact your insurance needs. For example, renting out a property in an area prone to natural disasters might require additional coverage for these events. Similarly, suppose your tenants are students or short-term vacation renters. In that case, you might consider coverage that addresses potential issues unique to these groups, such as accidental damage or loss of rental income.

4. Understand your coverage limits and exclusions

Every insurance policy will have its limits and exclusions, which are the maximum amounts an insurance company will pay out for a claim and the specific situations or items that are not covered, respectively. Be sure to understand these clearly. You may need to purchase additional coverage or endorsements to adequately cover certain risks.

5. Regularly review and update your policy

Your insurance needs may change over time due to property upgrades, tenant changes, or local environment shifts. Regularly reviewing your policy and updating it as needed ensures that your coverage remains appropriate and sufficient for your current situation.

Learn how Azibo helps you get the right coverage at the right cost

At Azibo, we ensure that you make informed decisions about insurance, whether you need coverage for a new property or want to save money across your entire portfolio, providing transparency and choice in rental property insurance. We streamline the property insurance process, allowing you to complete a single online form and get a free quote from the highest quality and most reputable carriers, often in a matter of minutes.

Our dedicated team is here to answer any questions and find the right coverage at a price that fits your budget. Azibo offers comprehensive landlord insurance policies, including property protection against events like fire, lightning, explosion, or vandalism; liability protection for legal, medical, or settlement expenses; additional coverage options; and umbrella coverage for further protection.

Put insurance headaches and hassles in the past and get your free landlord insurance quote today. Learn about Azibo Insurance Services.

Azibo Insurance Services LLC, a wholly owned subsidiary of Azibo Inc, is a licensed insurance producer. Contact us to discuss your specific insurance needs.

Disclaimer: The information provided in this post does not, and is not intended to, constitute insurance advice; instead, all information, content, and materials are for general informational purposes only. This content may not constitute the most up-to-date insurance information. Readers must contact a licensed insurance agent or company to obtain quotes, advice, and guidance with respect to any insurance matter. No reader, user, or browser of this article should act or refrain from acting on the basis of information herein without first seeking the advice of a licensed insurance producer.