Cracking the Landlord Insurance Nut

Anyone who’s owned a rental property and shopped around for landlord insurance will tell you that the process leaves much to be desired. Landlord insurance can be quite expensive and often runs 25% more than comparable homeowners insurance would for the same property.

That means it’s in your interest to get multiple quotes, preferably on an annual basis. But how do you do this without spending ten hours on the phone answering the same inane questions over and over?

That’s what I did for years until I found a better way. Now I let the insurance companies who want my business do all the hard work. I sit back and watch golf on TV while Allstate, GEICO, and State Farm sharpen their pencils.

Here’s how you can implement my simple system to save money on rental property insurance.

What Drives Rental Property Insurance Costs?

Like homeowners and renters insurance, your landlord insurance premiums are mostly a function of how much dwelling coverage you need. You have a lot of latitude in deciding how much coverage is right for you. Aside from shopping around and getting lots of quotes, reducing the coverage amount is often the most effective way to save money.

That game can only take you so far though, since lenders generally have a minimum requirement for dwelling coverage. It’s also risky. In the event of a significant loss, you might find yourself without enough proceeds to rebuild. We advise you to carefully assess your own risk profile, take a hard look at actual replacement costs in your area, and check with your lender before determining the right amount of coverage.

Once you’ve arrived at an amount you’re comfortable with, your rental property insurance premiums become a function of the following:

  • Amount of liability coverage requested
  • Construction quality (sometimes noted as Type I, II, or III)
  • Size of buildings (total square footage incl garages)
  • Number of units
  • Existence of out-buildings, sheds, etc.
  • Age of building, wiring, plumbing, etc.
  • Estimated replacement cost (local labor and materials)
  • Proximity to flood plain, sea level rise, wildfire risk, etc.
  • Any significant exclusions (flood, hurricane, earthquake, etc.)
  • Amount of income replacement coverage requested
  • Swimming pool, spas, or other liability risks
  • Alarm systems

As you can see, most of these factors are things you can’t really change. Many are a function of location and the physical condition of the property. Sure, you can add an alarm system or upgrade the electrical system, but these things are rarely worth doing only for insurance purposes. The payback period is simply too long unless you have other reasons for doing the upgrades.

With that in mind, let’s explore the key components of a landlord insurance policy. Then we’ll show you how to inventory your insurance needs on a single spreadsheet to get accurate quotes with ease.

What Are the Key Areas of Coverage?

Your declarations page sums up the major components of your policy. These typically include…

Landlord Dwelling

This is the “meat and potatoes” of the insurance policy. The dwelling coverage protects the physical structure and (typically) any attached structures as well. This is the part of the policy that generates check to the owner to be used towards repairs and/or replacement of the physical building in the event of damage due to fire, wind, hail, or other covered calamities.

The amount of dwelling coverage is typically sized based on a per square foot estimate of local replacement cost. Obviously, it costs more to replace an uber-modern glass structure than a forty-year-old brick house. That means the per square foot number is significantly impacted by your quality of construction. Newer construction, more expensive materials, etc. will all drive your per square foot replacement cost figure, and your insurance premiums, higher.

Other Structures Coverage

This part of a landlord insurance policy covers damage to detached structures like garages, fences, and sheds servicing your rental property.

Landlord Personal Property

Many landlords provide major appliances for their tenants’ use like refrigerators, washers and dryers, dishwashers, and hot water heaters. Other landlords also have snowblowers and other maintenance equipment stored on site. These items are covered by the personal property section of a landlord insurance policy.

Note that tenants’ personal property is explicitly not covered under nearly all landlord insurance policies. That’s true even when an otherwise covered event, like a fire, completely destroys the building and all contents due to no fault of the tenant. That’s why many landlords require each tenant to secure their own renters insurance policy.

Landlord Loss of Use

In the event of a major incident, you likely won’t be able to rent out your property while you complete repairs. The loss of rental income can be significant, which is where loss of use (or income replacement) coverage is essential. As with other components of the policy, there’s a hard limit on how much total replacement income you can receive. It’s usually limited by month as well, according to the property’s fair market rental rate.

Landlord Personal Liability

Liability coverage is an essential component of landlord insurance. This is what covers your legal and potential settlement costs in the event a tenant or guest sues you for an incident that occurred at your rental property. Damage awards can be significant in these situations, so you’ll want to pay special attention to your policy’s liability limits. If it’s not enough to help you sleep at night, consider adding a separate umbrella liability policy to handle excess claims and costs.

Landlord Medical Payments to Others

If someone is injured as a result of a condition present on your property, the medical payments coverage kicks in. Under this feature of your landlord policy, you won’t have to cover these costs out of pocket, up to a certain limit.

Deductibles (Sometimes) Influence Premiums

We’re generally big fans of relatively high deductibles. This is our standard preference because we’re usually loathe to file claims for smaller incidents. We can also reasonably afford to pay the deductibles when required. That might not be true for all rental property owners, so you’ll want to find your happy balance when it comes to landlord insurance deductibles.

It’s always best to ask your carrier or agent or broker to price out your policy premiums with a few different deductibles. That’s really the only way to accurately assess the risk/reward and make a fully informed decision about deductibles. You’ll notice that sometimes the premium responds nicely to a higher deductible, but other times you don’t save much at all and it’s best to keep it low.

Pay Attention to Exclusions

Most landlords don’t spend nearly enough time understanding what’s NOT covered under their new policy. The exclusions are where a lot of insurance companies make their money. Standard practice is to simply carve out certain major risks, like flood or hurricane, and then tell you about it in cryptic legalese deep in your policy documents.

It may not make any difference in the end, but it’s always best to know what you’re actually buying before you write the first premium check. We’ve found that when you ask up front for a list of policy exclusions, the whole process tends to go better. Either way, read the actual policy document to make sure you’re okay assuming all financial risks associated with the excluded scenarios. If not, consider getting a supplemental flood, earthquake, and/or hurricane policy to cover the gaps.

What Information Do Insurers Need for a Quote?

The exact personal and property information required differs among insurers. Virtually all will need the following:

  • Your name, address, email, and phone number
  • Insured property addresses
  • Square footages of insured properties
  • List of additional structures and sizes
  • Amount of dwelling coverage desired
  • Amount of liability coverage desired
  • Amount of income replacement coverage desired

You can save yourself a ton of time by putting all of this information into a single spreadsheet. Then export a PDF copy to easily share your info with insurers and insurance brokers. Keep your spreadsheet forever. Simply make updates as your portfolio changes over time.

Download Our Free Landlord Insurance Spreadsheet

Rent Bumper subscribers have ongoing access to all of our free rental property resources, including the Landlord Insurance Spreadsheet. It’s free to subscribe. Join now to receive your instant download link:

Use our spreadsheet to request rental property insurance quotes from as many carriers as you like. You’ll get more accurate quotes quickly without having to endure an endless stream of follow-up questions.

How to Use the Spreadsheet Effectively

Once you’ve filled out your personalized version of the Landlord Insurance Spreadsheet, the next step is to assemble a short list of possible carriers. The number one screening question is…

Do you write landlord policies in [list your location(s)]?

I’m often reminded that the insurance business is still a very regional industry. Even big national carriers don’t cover all geographies. Others have become very picky about localized risks from wildfires and coastal flooding. Of course, some major carriers don’t do landlord insurance at all.

In my opinion, filling out quote request forms online is a total waste of time. More often than not, the carrier on the other end doesn’t even offer landlord insurance in your area. Or they need a ton of additional information to actually quote a premium. They always make it sound like you’ll get a quote in minutes, and then lo and behold there’s no actual quote at the end of the Internet rainbow.

We recommend simply picking up the phone and calling the big property and casualty carriers first to see which ones offer landlord policies in your geography. Here’s a quick list to get you started:

You can try their online quote generation forms but it’s often just as easy to make a phone call. You might learn something new too!

Who Writes the Most Rental Property Insurance Policies?

This is a tough question because not all rental properties are created equal. The industry just doesn’t break down the stats the way we’d like them to, so we’ve had to do some sleuthing to find answers.

The real question for many smaller DIY landlords is, “Who writes the most landlord insurance policies on 1-4 unit residential rental properties?

Here’s what we know…


Landlord Insurance vs Homeowners Insurance

Rookie landlords sometimes make the mistake of assuming that a regular homeowners policy will cover their single-family rental property even when tenant-occupied. You’re of course welcome to keep paying the premium, but in the event of a claim, count on it being denied. Once your insurer finds out it’s being used as an income-generating rental property, all bets are off.

The biggest difference between a proper landlord insurance policy and regular homeowners insurance is that the risk profiles are materially different. Generally speaking, tenants are less careful with someone else’s property than you would be with your own. That plays out in the frequency of covered incidents and the costs associated with repairs. Insurers price their policies based on statistical risks. That’s one reason a landlord policy will generally run 20-30% more than a very similar homeowners policy on the same structure.

What About Short-Term Rentals?

If you’re doing short-term rentals occasionally, check with your insurer to confirm that your homeowners policy will cover you. Some will and some won’t. If not, or you’re hosting ongoing vacation rental activity, check out how to Avoid the Airbnb Host Insurance Trap.

You’ll also find a few good tips regarding insuring your short term rental property buried in 99 Airbnb Tips for Expert Hosts.