Landlord Insurance: What a Rental Property Needs

Landlord insurance (usually a dwelling policy, DP-1 through DP-3) covers a property you rent out. A standard homeowner's policy will not, and a claim on the wrong policy type can be denied outright.

What it covers

• The structure, against fire, storm, vandalism and similar perils
• Liability, if someone is injured on the property
• Loss of rental income, if the property becomes uninhabitable after a covered loss
• Your appliances and fixtures. Never the tenant's belongings, which are their renters' insurance

A DP-3 is the broadest and most common choice for investors, covering open perils on an replacement-cost basis. DP-1 is cheaper, narrower, and often settles at actual cash value, which can mean a depreciated payout on a roof.

What it costs

Typically US$800 to US$1,800 a year on a single-family rental, driven by:

• Replacement cost, not purchase price
• Location: coastal wind and hail exposure dominates in some states
• Roof age, which has become a major underwriting factor
• Deductible, and whether wind/hail carries a separate percentage deductible
• Claims history on the property

Worth adding

• Flood, which is never in a standard policy. Required inside a high-risk flood zone, and worth considering just outside one.
• Umbrella liability, cheap for the coverage it adds across properties.
• Ordinance or law, which pays to rebuild to current code, relevant on older housing stock.
• Equipment breakdown, for HVAC and systems failures.

Practical points

Require tenants to carry renters' insurance and name you as an additional interested party; most managers do this as standard. Expect a vacancy clause. Many policies restrict coverage after 30 or 60 days empty, which matters during a turnover or renovation, and a vacant-property endorsement covers the gap.

Get a real quote before you commit to a deal rather than assuming a number. In high-wind and coastal markets, insurance has moved enough in recent years to change which properties cash flow at all.

Related reading

The calculator includes an insurance line in its defaults. Replace it with your actual quote. Buying a rental property out of state covers what else to verify remotely.