Are you a landlord? Do you rent out rental property to tenants? If yes, you need a specialized form of insurance called landlord insurance. Otherwise, you're taking on some serious financial and legal risks that almost nobody can afford to bear.
We're not saying this because we're on the payroll of an insurance company. We just have a healthy understanding of the real-world things that can go wrong with rental real estate, and how the legal system often assigns liability. Careless landlords are frequently torn apart limb from limb in bankruptcy courts to extract damages that would otherwise be borne by landlord insurance.
Your standard homeowners insurance doesn't cover many needs you might have as a landlord. You need protection if a tenant sues you or another major issue arrises.
If you're habitually and regularly renting your property, and/or you are no longer the full-time resident, you are endangering yourself and your financial well-being if you do not put the proper landlord insurance coverage in place.
Check with your carrier for specific exclusions. Some are more tolerant of short-term/vacation/occasional rentals than others. Be aware that renting your property over a month per year will likely prevent your homeowners insurance policy from giving you the protection you need.
If you're renting a property and a tenant gets seriously injured, they may sue you for damages. Your personal liability insurance on your policy likely won't cover damages to renters who live there for an extended period of time. Your homeowners insurance carrier did not sign on for that risk, and they may well deny the claim.
Umbrella coverage is important and cheap. One of the reasons it's cheap is that it only goes into effect after other kinds of insurance have paid out their maximum claims. If a tenant sues you and you don't carry landlord insurance, your umbrella carrier may resist paying the claim as well. Their lawyers would argue that you were negligent in not obtaining the basic landlord coverage, and therefore misrepresented your true risk profile to them.
Most homeowners insurance policies limit personal liability coverage to a few hundred thousand dollars. But landlords frequently face lawsuits with damages that amount to much more than that, particularly when negligence is involved. Landlords typically need at least $1 million in liability coverage.
Increasing your overall liability coverage from a couple hundred thousand dollars to $1 million may cost you a few hundred dollars more per year. The immense difference in protection is worth it, however, in that it will provide sufficient coverage for the vast majority of lawsuits and other legal actions.
If you're embroiled in a landlord-tenant legal dispute or are being sued by a tenant, your homeowners insurance carrier may not cover your legal costs. Their policies are limited to non-landlord tenants, which have a very different risk profile.
The costs of legal representation can easily run to $50,000 or more. Most landlord insurance policies provide help with legal defense, including a "duty to defend clause," that's specific to cases that arise as a result of activities related to managing rental real estate.
Standard homeowners insurance doesn't provide coverage for housing discrimination lawsuits or problems arising from disputes over the Americans with Disabilities Act, the Fair Housing Act, state regulations, or anything else. Landlord insurance carriers understand that these disputes occasionally happen, even with landlords who never intend to discriminate. They therefore design their landlord insurance coverage with this in mind.
Suppose you have a tenant whose dog bites a child. The average dog bite claim is close to $30,000, but few renters would be able to pay that much. Many plaintiffs' lawyers will go after the landlord, knowing where the pockets are deepest. If all you have is a homeowners insurance policy, and you file a claim, you're going to have problems with your insurance carrier the moment they find out you have a renter.
Pro tip: Require proof of renters insurance for all tenants to avoid being held liable in instances like these.
Many landlord insurance policies come with fair rental income insurance that will cover your lost income if your tenants have to move out because they can't live in the dwelling anymore due to it being inhabitable.