What Is Landlord Insurance?
Landlord insurance offers protection from financial loss due to structural damage to the rental property, as well as legal liability claims. This type of policy is meant to cover the income that you would have received if such unfortunate events had not occurred. It does not, however, cover temporary cash flow problems as a result of being unable to find renters to occupy the property.
Another term for landlord's insurance is a rental dwelling policy. There are three types of so-called "Dwelling Fire Form" insurance policies in the United States: DP-1, DP-2, and DP-3. For more information about these property valuation methods, visit our Commercial Property Insurance page.
Are Landlords Required to Have Insurance?Open or Close
Even though landlord insurance in New York is not required by law, it's ususally mandated by lenders for the properties that they finance. If you own the property outright, then you can choose whether or not to insure it, but we would caution against leaving it uninsured, unless you have the cash reserves to cover any potential losses or damages, including the medical expenses of tenants (or their guests) who experience injuries for which you are found to be legally liable (e.g., broken steps or icy walkways).
Homeowners Insurance vs. Landlord InsuranceOpen or Close
A homeowner's policy accounts for common risks that are associated with owning a home, but it doesn't cover the range of legal risks that one assumes when renting property to others. Furthermore, a homeowner's policy requires that the property be owner-occupied, but landlords typically don't live in the same dwelling as their tenants. If a non-resident landlord files a claim for damage or loss to a rental property that is only insured under a homeowner's policy, then the insurance company can deny the claim.
It's also important to be aware that while a landlord policy can be designed to cover your personal belongings that are being used on the property, it does not cover the tenants' personal belongings. For coverage of their possessions, your tenants would need to purchase renters insurance on their own if they so desire. Optionally, you can require them to have it as part of your lease agreement.
What Does a Landlord Insurance Policy Cover?Open or Close
A basic landlord insurance policy offers dwelling coverage for structural damage to the property and fair rental income protection for cases where the tenants have to move out unexpectedly due to a covered loss and you're unable to collect rent during the time that the property is being repaired. A comprehensive policy would include additional protections such as:
- Acts of Nature – hurricanes, earthquakes, lightning strikes, etc.
- Water/Flood Damage – usually a separate policy but can be included in the package
- Personal Property – important if you're renting out a furnished house or apartment, but it also covers window treatments, appliances, carpets, and more
- Legal/Liability/Medical – protects you in the event that you get sued by a tenant or even a contractor working on the property
If you have multiple rental properties or a large property such as an apartment complex, then you may wish to consider investing in an Umbrella or Excess Liability Policy to cover your personal assets in case a liability claim exceeds the coverage limit of your DP-1, DP-2, or DP-3.
Does Landlord Insurance Cover Tenant Damage?Open or Close
If your tenants vandalize or damage your rental property in any way, your insurance policy will cover those situations. Requiring a security deposit and/or a cleaning deposit upfront can also help mitigate financial hardships arising from the tenant's actions, especially if the monetary extent of the damage is greater than the coverage limit. You might also want to include a clause in the rental agreement where the tenant will forfeit the return of his or her security deposit under certain conditions.
Is Landlord Insurance Tax Deductible?Open or Close
Owning real estate for the purposes of generating rental income qualifies as a business endeavor. Therefore, the IRS will allow you to deduct most business expenses, including your insurance premiums.
How Much Does It Cost to Insure a Rental Property?Open or Close
Insurers consider several factors when calculating your landlord insurance premium:
- Number of rental units
- Square footage
- Age and condition of the property
- Known geographical risks (flood plains, hurricane zones, etc.)
- The presence of fire sprinklers
- Whether or not you rent to smokers
- Security measures (burglar alarms, gates, fences, cameras, etc.)
- Whether or not the electrical wiring is up to code
- Type and amount of coverage
The cost of landlord insurance for a small rental unit might be a few hundred dollars per year, whereas a large complex with amenities such as a swimming pool and fitness center may have an annual premium of several thousand dollars. In any case, landlord insurance is usually 15-20% more expensive than a typical homeowner's policy because of the additional risks involved in the real estate rental business.
Landlord Insurance Quote
Unfortunately, it's not possible to get an accurate dwelling insurance quote without answering a long list of questions, a process that you would have to endure with every single insurance company that you're considering. By using an insurance broker such as the New York City Business Group, you can save yourself a lot of trouble. We'll get the information we need from you and will then provide you with several quotes from different insurance companies.
If your rental property is in Manhattan, the Bronx, Brooklyn, Queens, Staten Island, or anywhere else in NY or NJ, then give us a call at 718-554-3425 for a free landlord insurance quote. We can also help you determine how much coverage you need based on your assumed risks, as well as identify any discounts for which you may qualify.