If you own a home, you likely are already aware of homeowners insurance and its importance in insuring your residence.  However, what insurance, if any, should you have on a rental property?

A standard homeowners insurance policy in most cases does not adequately cover damages to a property that is being used for rental purposes.  If you are renting out a property that you own, a standard homeowners insurance policy can protect the landlord’s personal property that may remain in the rental property, but not necessarily any damage done to the structure or liability that may arise from tenants living on your property.

Landlord Insurance

Rental property insurance (also known as “landlord insurance”) policies are important protection from the unique risks presented in renting out real property.  Rental property insurance ordinarily comes standard with the following types of coverage:

1. Liability Coverage. Similar to homeowners insurance, this coverage will protect the landlord from the legal and medical costs associated with someone being injured on the rental property.
2. Property Damage Coverage. Also similar to homeowners insurance, this coverage covers physical damage to the structure of the rental property due to a hazard covered by the policy.
3. Personal Property Coverage. This coverage protects the landlord’s personal property that may be left at the rental property. It is important to note that this coverage will not cover the personal property of the tenant, for which they should obtain renters insurance as discussed below.
4. Loss of Income Coverage. This coverage reimburses the landlord for rent lost as a result of the rental property becoming uninhabitable due to a hazard covered by the policy.  Coverage will generally extend up to a period of time defined under the policy, such as one year.

Usually, rental property insurance policies offer additional coverages, such as flood insurance, to further protect the rental property.  Therefore, if the rental property is in a flood zone, adding flood insurance coverage would be a necessity in further protecting your investment.

Renters Insurance

Renters insurance is an insurance policy that provides coverage for the tenant’s personal belongings and possibly small alterations that the tenant may make to the structure, but not the dwelling itself, and is another means of protecting your rental property.  While renters insurance is not required by state law, it is the only means that a tenant can protect their belongings.  In addition, renters insurance can also protect tenants from having to pay out-of-pocket for common incidents, such as water backup damage and certain natural disasters.

Different insurance companies have different rules for what they consider to be rental properties.  When an individual plans to rent out a property regularly to a variety of people for short periods of time (i.e. Airbnb or Vrbo), the rental property may be considered a business, and neither homeowners insurance nor rental property insurance will provide sufficient coverage.  Instead, some form of commercial property insurance may provide more coverage with the associated risks.  Accordingly, it is important that you contact your insurance provider in advance of obtaining a policy so that you may confirm whether your property qualifies under their terms and what coverage they can offer.

To sum it up, you need to protect yourself and your rental property. It is a good idea to require renters insurance of your rental tenant.