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Congratulations — not only are you a property owner, but you’re also a landlord! Talk about making it big in life! But with great success comes great responsibility — in particular, the responsibility to keep your property well protected.
That’s where landlord insurance comes in. Landlord policies provide financial protection if you rent your property to tenants by offering coverage for structural damage, legal fees and medical bills from on-site accidents (known as liability insurance or liability protection), and rental income loss.
In this article, we’ll review the main factors that go into calculating how much your landlord insurance might cost — and what you can do to keep the price lower.
“That’s all good and fair” you say, “but what the heck is this policy going to cost me?” Generally speaking, landlord insurance tends to be pricier than a homeowners policy. In fact, according to the Insurance Information Institute, the price of a landlord insurance policy is roughly 25% more than homeowners coverage. So, if the average cost of homeowners insurance is nearly $1,300 per year, you can expect to pay an annual premium of about $1,625 for landlord insurance.
So why is landlord insurance coverage so much more expensive than homeowners insurance? In part, this is due to the fact that landlords often have a lot of liability coverage ($1 million worth, generally speaking) when compared to homeowners.
Plus, a landlord’s insurance claims on a renter property tend to cost a lot more than a homeowner’s claims on their primary residence. All of which is to say: it’s certainly going to cost you more than pennies on the dollar.
That said, prices for landlord insurance vary — and dramatically — depending upon a variety of considerations, including the location of your property and how old the building is. A charming old cottage might cost a bit more to insure, for example, than a brand new apartment. Here are a few factors that may impact your policy:
When setting your insurance rate, insurance providers will certainly consider the age of the property itself. Although not always the case, the older your property is, the more it’s likely to cost to insure.
This is mainly because fixing and repairing an older structure is expensive, and work can take a long time if materials are hard to source or the building needs to be brought up to code.
Similarly, larger properties will cost you more to insure because repairing them is a more intensive process. A contractor will need more time, labor, and materials to get the job done than if the project was pint-sized.
Likewise, the number of rental units you want to insure also matters. Insuring a single-family home will probably be cheaper than a multi-unit apartment building. And expect to pay more if there are other structures on the property, such as garages or sheds.
As they say, it all comes down to “location, location, location” — and unfortunately, it’s true: your beachfront view comes at a cost. Location is a fundamental factor when it comes to determining your premium.
And don’t think this just means the city or town: if you own a building in a high-crime area or a region that regularly gets hit by tornadoes, you will have to pony up for coverage. The opposite is true as well: safe neighborhoods, good school districts, and stable weather mean you may pay less than expected.
The length of your rental agreement can significantly impact insurance rates. That’s because short-term renters (think Airbnb guests) are seen as riskier and less invested in maintaining a property.
Long-term tenants, so the theory goes, are more inclined to view your property as their home, which means they will stay on top of issues and inform you about problems as they arise. As a result, your insurer will generally recognize the reduced risk with a lower insurance rate.
As with any insurance policy, the type of coverage you select impacts the rate you pay. When it comes to landlord insurance, there are three main types:
A DP-1 policy is the most basic and least pricey option. It’s called named risk insurance because coverage is limited to specific covered events listed in your policy. The list of covered hazards will be short and may include property damage resulting from fire, vandalism, explosions, wind, hail, and riots.
Plus, the policy will likely only pay out the actual cash value of the property, which means depreciation is subtracted from the amount it costs to replace covered items. This keeps the cost of insurance low, but could mean you need to spend more if you ever need to make repairs to your property.
A DP-2 policy is more expensive than a DP-1 policy. It’s also named risk insurance, but the list of covered perils is longer and includes everything in a DP-1 plan, as well as hazards such as:
DP-2 plans generally come with replacement cost coverage — which doesn’t deduct depreciation, so you’d receive the total amount to buy any covered items brand new. Plus, you most likely will be able to file a claim for lost rental income if your tenant needs to live elsewhere while you repair the property.
Because a DP-3 policy offers the most comprehensive coverage, it makes sense that it’s the priciest option. Instead of named hazards, it lists which perils aren't covered. Typical coverage exclusions include intentional damage, earthquake, or flood damage. Like DP-2 plans, DP-3 policies offer replacement cost coverage and protect you if you face a loss of rental income.
Whichever plan you choose, there are always add-ons available which can make the coverage more robust:
And don’t forget: Since your landlord insurance is a business expense, you may be able to write it off on your taxes. Chat with an accountant specializing in real estate taxes to maximize your deduction.
Finally, you may also be able to reduce your landlord insurance expenses in a few ways, including:
We know that Goldilocks got a bad rap, but when it comes to landlord insurance (and all other types of insurance, really) it’s best to embrace your inner child and be picky!
With the Marble Marketplace, you can shop for different policies and compare quotes to find a policy that’s just right (c’mon, we had to). Plus, you’ll earn rewards just for having insurance, and who could say no to that? Create your free account today!
