Do You Need Landlord Insurance for a Rental Property?

Yes. A standard homeowners policy insures the home you live in, so once you move out and rent the property, you need a landlord policy, usually called a dwelling or dwelling fire policy. It covers the building, other structures, and the rent you lose after a covered loss, plus contents you own there if you add them. Liability coverage is usually added to it or bought separately. If the property has a mortgage, most lenders also require property insurance for as long as the loan is open.

Why your homeowners policy stops fitting a rental

The standard homeowners form (ISO HO-3) insures the "residence premises," which it defines as the one-family home where you live, or a two- to four-unit building where you live in one of the units. A house you have moved out of no longer meets that definition.

The same form excludes liability for "business" activity. It carves out only a few rental situations:

• Renting your home occasionally while you still use it as your residence.
• Renting part of the home you live in, such as one unit of a duplex you occupy, as long as you take no more than two roomers or boarders per unit.

Renting the whole house to a tenant full time fits neither exception. A two- to four-unit building where you live in one unit can stay on a homeowners policy, but tell the insurer about the rented units so the policy is written correctly.

Tell your insurer before the tenant moves in. The standard dwelling form voids coverage for everyone on the policy if an insured intentionally conceals or misrepresents a material fact about the insurance. Short-term rentals through home-sharing platforms raise the same problem: the NAIC warns that most homeowners and dwelling policies are not designed for them and claims may be denied even without a specific rental exclusion.

What a landlord policy covers

The table uses the coverage letters on the standard dwelling form (DP-3). Your insurer's form may differ, so check the declarations page, which lists each coverage you bought and its limit.

The DP-3 covers the building against any cause of loss the policy does not exclude, while basic dwelling fire forms list only a few perils. The basic form (DP-1) offers coverage for other structures, personal property (Coverage C), and fair rental value, but does not include liability or medical payments coverage. Price the DP-3 and a basic form side by side before choosing the cheaper one.

Every landlord policy leaves out some losses:

• Your tenant's belongings. The NAIC is explicit that a landlord's policy does not cover the things a renter owns.
• Flood. Excluded on homeowners and dwelling forms. FEMA's National Flood Insurance Program (NFIP) sells separate building coverage up to $250,000 for a residential building.
• Earthquake and other earth movement. Excluded, though fire that follows an earthquake is covered.
• Wear and tear and slow leaks. A policy pays for sudden damage, not maintenance. Mold coverage varies: the cited DP-3's Coverage C has an exception for hidden mold from covered water damage. Ask your insurer about mold coverage limits and optional endorsements.

How to set the dwelling limit is covered in how much insurance coverage to buy. Which disasters are excluded and how to fill those gaps is covered in insuring a rental against floods, earthquakes, and other disasters.

How lost-rent coverage pays

Fair rental value pays the rent you would have collected, minus costs that stop while the unit is empty. It stops when repairs should reasonably be finished, even if the policy expires first. If damage to a neighboring property from a cause insured by your policy leads a civil authority, such as the fire department or city, to bar access to your building, the DP-3 pays lost rent for up to 2 weeks. It does not pay for rent lost because a tenant cancels a lease.

Example: a fire makes a $2,000-a-month unit unlivable for 4 months, and you normally pay $150 a month for the tenant's water and trash, which stops while the unit is empty. The claim is 4 x ($2,000 - $150) = $7,400, subject to your fair rental value limit.

Liability coverage for landlords

Liability coverage pays legal defense and damages when someone claims your negligence caused an injury or property damage at the rental, such as a fall on a broken stair. The Idaho Department of Insurance lists it among standard landlord coverages, but the basic dwelling fire form does not include it. Look for a liability limit on the declarations page, and add a personal liability endorsement if none appears.

An umbrella policy adds liability coverage above the landlord policy's limit. For how limits work and when an umbrella makes sense, see whether liability coverage has a maximum amount. Liability insurance does not cover your tenant's own liability, which is one reason landlords require renters insurance in the lease.

Renting out a condo unit

A condo's HOA master policy covers part of the building, and where its coverage stops depends on the association's governing documents, according to the Idaho Department of Insurance.

The standard condominium unit-owners form is written for owners who live in the unit, the NAIC notes. Before renting the unit:

1. Get the master policy's certificate and the HOA documents. Note what parts of the unit, if any, the master policy covers, and its deductible.
2. Ask your insurer for a unit-owners policy or endorsement written for a unit rented to others.
3. Set the building limit high enough to replace everything inside the unit that the HOA documents make your responsibility.
4. Confirm the policy includes fair rental value and liability coverage for the rented unit.

Vacancy during a rehab or between tenants

The standard dwelling form cuts coverage once a property sits vacant. Under the DP-3:

• Vandalism and theft are not covered if the dwelling has been vacant for more than 60 consecutive days right before the loss. Damage caused by burglars is excluded on the same terms.
• A dwelling being constructed does not count as vacant.
• Frozen pipe damage is covered only if you kept the building heated or shut off the water and drained the system.

If a turnover or renovation will leave the unit empty for close to 60 days, tell your insurer before the deadline and ask how it will keep coverage in place, such as a vacancy permit endorsement or a vacant-dwelling policy. Keep the heat on or have the plumbing winterized. Tell the insurer about major renovation work, since it changes what the building would cost to rebuild.

Steps to insure a rental

1. Switch to a landlord policy that takes effect before the first tenant moves in, and describe the property as a non-owner-occupied rental.
2. Set the dwelling limit at the cost to rebuild, not the purchase price.
3. Confirm fair rental value and liability limits appear on the declarations page.
4. Check flood risk on FEMA's maps and earthquake risk for your area, and price separate coverage if needed.
5. Require tenants to carry renters insurance for their belongings and liability only where state law permits. Oregon's ORS 90.222 includes income and housing-subsidy exemptions from renters liability insurance requirements.
6. If the property is held in an LLC, make the LLC the named insured. The dwelling form pays an insured no more than that insured's interest in the property, so a policy in your personal name may not match a title in the LLC's name. See whether to create a separate legal entity for your rentals.
7. Compare quotes on identical coverage. The steps are in how to choose a landlord insurance policy.