What is rental property insurance?

Do I need insurance to rent out my home?

While no laws state you must carry homeowners insurance, it’s almost certain that your lender will require you to have coverage if you have a mortgage on your property. If you decide to rent out your home, you may or may not need a specialized policy to cover this increased risk — it depends on whether your home is owner-occupied and the length of time you’ll be renting out your home. If you are considering becoming a landlord or participating in a peer-to-peer rental network like Airbnb, you should let your homeowners insurance company know and ask for further guidance. In the meantime, you may find the information below helpful.

Short-term rentals

For one-off short-term rentals, like a weekend or a week-long stay for a renter in your primary residence, a homeowners insurance policy might provide enough coverage as long as you let your insurance company know you are renting your home. However, some providers will require you to purchase a short-term rental endorsement policy to extend your coverage. The same applies if you are renting out a single room in your home, but again, it depends on the length of the renter’s stay and your insurance company’s guidelines.

Inviting different renters into your home for short stays multiple times a year (participating regularly in Airbnb, for instance) is equivalent to running a business, and standard homeowners insurance does not usually cover business-related activity. In this case, you might need to purchase a business insurance policy, such as a bed and breakfast or hotel policy, or a home-sharing endorsement.

Long-term rentals

For long-term rentals, the insurance requirements are different. If you are renting your investment property to the same people for six months or a year, you will likely need rental property insurance, otherwise known as landlord insurance. Landlord insurance is tailored for this unique situation and covers gaps that carrying only standard homeowners insurance on a rental property would leave.

Keep in mind that neither rental home nor homeowners insurance provides coverage for your tenants’ belongings. They will need a renters insurance policy to protect their personal items while they are renting your home.

What is the difference between landlord insurance and short-term rental insurance?

The two are similar in many respects but differ in their purposes. Short-term rental insurance, as the name suggests, is designed for landlords with renters who stay for a few weeks or months. It may be available as a rider on your homeowners policy or as a separate policy. It may provide coverage for your rented property only for the time it is being used by renters rather than continuously.

Landlord policies, on the other hand, are intended for property that is inhabited by renters for six months or more. It provides continuous coverage and may include loss of income coverage for times when a covered claim leaves the property uninhabitable. Neither type of policy includes coverage for a renter's belongings — these would be covered by a renters policy that your tenants must purchase on their own.

What is the difference between homeowners insurance and landlord insurance?

Homeowners and landlord insurance are similar in many ways. For example, both homeowners and landlord insurance provide coverage for the physical structure of the home along with the homeowner’s personal liability. There are two key differences, however, that differentiate a homeowners policy from a landlord policy: how personal property coverage works and the inclusion of loss of income.

Your homeowners insurance generally will cover damage to your personal property, from clothes to computers, in a covered claim. Landlord insurance, however, does not cover damage to the belongings of your tenants, although it is likely to cover damage to any of your own possessions, such as a washing machine or stove, that are on the rental property. As we noted above, your tenants will need to have renters insurance if they wish for coverage for their own belongings.

Loss of income coverage is another difference. It is commonly included with landlord policies, and it may offer a payout equal to the amount of lost rent (subject to deductibles) if your rental property cannot be used due to a covered claim. The equivalent coverage in a homeowners policy is called loss of use coverage, and it pays for extra costs you may have if you are unable to live in your own home while it is being repaired.

However, it is essential to note that while both homeowners and landlord policies provide liability coverage for the homeowner if you rent your home and your tenant injures themselves on your property, your homeowners insurance could deny the claim. Carrying standard homeowners insurance on a rental property is not advised — a homeowners policy assumes your home is owner-occupied and is not structured to cover the heightened risk involved in renting out your property. Obtaining proper coverage through a landlord policy is crucial for financial protection if you are renting property long-term.

What does rental property insurance cover?

Although specific coverage options may vary depending on the company you work with, here are some common coverage types that are likely to be included in your rental property insurance:

• Dwelling coverage: Helps pay for repairs to the structure.
• Other structure coverage: May help pay for other structures on your rental property, such as a garage, fence or deck.
• Personal property: This includes any equipment or machinery left on the property, from a snowblower to a stove and oven. It does not cover the renter's personal property.
• Liability: Helps pay for medical bills or legal expenses if someone is injured on your rental property and you're found to be responsible.
• Loss of income: If your property is damaged in a covered claim and cannot be used by tenants, this coverage can reimburse you for the loss of rent.
• Optional coverages: A basic policy may not include coverage for perils such as vandalism, burglary or repairing up to building codes, but these could be available as endorsements to add to the policy.

How much liability insurance do I need for a rental property?

Standard home and landlord insurance policies include liability coverage, but you may want to increase your liability limits or purchase a separate umbrella policy if you feel you need more liability coverage. How much liability insurance you need for your rental property depends partly on the size of the property, as well as on your own tolerance for risk. Someone who rents out a back bedroom, for example, is likely to need less liability coverage than a person who owns a four-unit apartment building.

One rule of thumb is to have enough liability insurance to cover the value of your assets. Other insurance experts recommend that you purchase around $1 million in liability insurance to ensure that you are covered even after a pricey claim.

Additional coverage for your renters

The coverage that your renters may need will vary based on the type of rental you have. Renters staying in a short-term or vacation rental likely do not need to purchase any additional insurance. If they have homeowners insurance coverage or renters insurance on their primary residence, their personal property coverage will likely cover at least a percentage of their personal property while on vacation.

However, if your guest is living in your rental home long-term, they may want to consider a renters insurance policy. Your landlord insurance does not provide any coverage for personal property owned by the tenant, and your tenant also likely needs liability coverage of their own in case they are found negligent for guest injuries or damage to someone else’s property. Thankfully, renters insurance is relatively inexpensive, costing an average of just $170 per year, according to the Insurance Information Institute (Triple-I).

Frequently asked questions