Rental property insurance
Key takeaways
Insurance requirements may vary depending on the length of time you are renting out your property.
Standard homeowners insurance does not typically cover business-related activities, such as homes rented on Airbnb.
Landlord insurance provides coverage for physical damage to the property and homeowner liability, and may include loss of income coverage.
Renters may need to purchase their own renters insurance policy to cover their personal belongings and liability.
Whether you rent a second home to long-term tenants or open up a room to vacationers for a week or two at a time, working as a landlord may be lucrative. However, renting out property without the proper coverage may put you in a financially vulnerable position — if a tenant sues you and you lack the appropriate coverage, your out-of-pocket expense could easily outweigh your rental income. You may think you’ve covered everything with your homeowners insurance, but as a landlord, you will likely have gaps that a specialized policy could fill. Bankrate’s insurance editorial team is here to help you make sense of homeowners, renters and 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 have a second home and decide to rent it out , 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.
Learn more: Airbnb insurance
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 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.
A standard homeowners policy covers your belongings against covered perils, up to the limit of coverage you carry. On a landlord policy, the only personal belongings that are covered are those you keep at your rental property for your tenant to use (a refrigerator or washing machine, for instance).
Additionally, landlord insurance could provide loss of income coverage, whereas homeowners insurance does not. Suppose you own a second home in Florida that you rent out to tenants long-term. A hurricane blows through the state, resulting in damage that makes your rental property uninhabitable. In that case, your landlord policy may provide a payout to cover the loss of income you will experience while your rental property is repaired.
Homeowners policy | Landlord policy | Renters policy | |
|---|---|---|---|
Physical damage to structure | ✔ | ✔ | X |
Homeowner’s liability | ✔ | ✔ | X |
Renter’s liability | X | X | ✔ |
Homeowner’s personal property | ✔ | X* | X |
Renter’s personal property | X | X | ✔ |
Loss of income for rental property | X | ✔ | X |
*A landlord policy will cover property that the homeowner owns, as long as it’s furnished for the tenant’s use.
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.
Additional coverage for your renters
The coverages 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 $174 per year, according to the Insurance Information Institute (Triple-I).
Frequently asked questions
Do I need rental property insurance if I have homeowners insurance?
The short answer is—it depends. If you rent your primary residence for short periods of time, your homeowners insurance policy might provide enough coverage. However, you may need to purchase an endorsement for added coverage. If you rent your secondary home to the same person or group for long periods of time—think six months or longer—you’ll need to get rental property insurance. If you’re not sure what type of insurance you need, get a recommendation from your insurance company. It’s probably a good idea to let your home insurance company know you are renting out your property even if you think you are covered (no matter how often or for how long) just to be sure you are covered in case something happens.
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 will likely depend on your home’s characteristics, your personal preferences and your budget. If your rental property has features that may make it more prone to liability claims, such as a pool or boat dock, you may want to increase your liability limits. Speaking with a licensed insurance agent may help you determine how much liability coverage is appropriate for your rental property.
How much does landlord insurance cost?
According to Triple-I, the average cost of insurance for rental property coverage is about 25 percent more than a homeowners policy. Using this information, we can extrapolate that the average insurance cost for rental property coverage is around $1,785 per year, since we know that the average annual premium for a homeowners policy is $1,428 for $250,000 in dwelling coverage, according to data obtained from Quadrant Information Services. These are just sample rates, and your actual landlord insurance cost could be very different depending on your circumstances. The only way to get a true sense of what landlord insurance might cost for you is to obtain quotes from several insurance companies for the coverage options and limits you need.
If I have insurance through the rental sharing company, is that enough?
Airbnb and other rental sharing companies usually offer some type of insurance for people who rent their home on the platform. Some people rely on that insurance alone, rather than purchasing their own policy. However, rental company insurance policies don’t cover everything, and making a claim through a company like Airbnb is may be more difficult than filing a claim through your own insurance company. Also, rental company policies typically don’t cover loss of income, which landlord insurance does cover. Overall, it may be best to spend the extra money and purchase a full rental property policy through your insurance company. Consider speaking with a licensed insurance agent to discuss all your options.
