Landlord Insurance Explained: What It Covers and What It Doesn't
Quick Answer
Landlord insurance (often called a dwelling or DP-3 policy) covers the structure, lost rental income during a covered repair, and liability -- things a standard homeowners policy excludes once a property is tenant-occupied. It typically costs 15-25% more than homeowners insurance on the same property, and it doesn't cover the tenant's belongings or normal wear and tear.
One of the most common — and most expensive — mistakes new landlords make is renting out a property while still carrying a standard homeowners policy. Insurers write homeowners policies assuming an owner-occupant lives there; once a tenant moves in, that assumption breaks, and so can your coverage exactly when you need it most.
What Landlord Insurance Covers
- Dwelling coverage — rebuilds or repairs the physical structure after a covered loss like fire, wind, or certain water damage
- Liability coverage — protects you if a tenant or visitor is injured on the property and sues
- Loss of rental income — reimburses lost rent while the unit is uninhabitable due to a covered repair
- Landlord-owned contents — appliances, fixtures, and furnishings you own and provide, like a washer/dryer in a furnished rental
What It Doesn't Cover
- Tenant belongings — their furniture, electronics, clothing. This is what renters insurance is for, and it's reasonable to require tenants carry it.
- Normal wear and tear — insurance covers sudden, accidental damage, not gradual deterioration from ordinary use.
- Flood damage — requires a separate flood policy, typically through the National Flood Insurance Program or a private flood carrier.
- Earthquake damage — also a separate add-on policy in most states where it's a relevant risk.
- Intentional tenant damage in some cases — policies vary, but malicious damage by a tenant can fall into a coverage gray area; review your specific policy language.
Why It Costs More Than Homeowners Insurance
Insurers price in the added risk of tenant occupancy: more move-in/move-out turnover, reduced day-to-day owner oversight, and liability exposure from having non-owner occupants on the property. Expect roughly 15-25% higher premiums than a comparable homeowners policy on the same structure.
Policy Types
| Form | Coverage Level |
|---|---|
| DP-1 (Basic) | Named perils only, actual cash value (depreciated) payout — the minimum, least expensive option |
| DP-2 (Broad) | Broader list of named perils, often replacement cost rather than depreciated value |
| DP-3 (Special) | Most comprehensive — covers all perils except those specifically excluded, the most common choice for serious landlords |
Smart Additions Worth Considering
- Umbrella liability policy — extends liability coverage well beyond your dwelling policy's limit, cheap relative to the protection it adds, especially once you own multiple properties
- Requiring tenant renters insurance — shifts responsibility for their belongings off your policy and reduces disputes after a loss
- Flood coverage — non-negotiable if the property is in or near a flood zone, regardless of whether a lender requires it