Real estate is one of the best ways to build generational wealth. But whether you own a long-term rental apartment or a short-term Airbnb vacation home, you are running a business, not just owning a house.
Here is the hard truth: Your standard homeowners insurance policy will NOT cover a rental property.
If a tenant starts a fire or falls down the stairs, you could lose the property and face a massive lawsuit. To protect your investment, you need specialized Landlord Insurance.
1. Homeowners vs. Landlord Insurance: What’s the Difference?
Standard homeowners insurance covers a home you live in. Once you hand the keys to a tenant, the risk profile changes completely.
Landlord insurance (also known as a Dwelling Fire Policy or DP-3) is designed for non-owner-occupied properties. It costs about 25% more than standard insurance, but it covers risks that regular policies exclude.
2. The "Loss of Rental Income" Feature (Crucial!)
This is the most valuable part of the policy for investors. Imagine your rental property catches fire and takes 6 months to repair.
- Without Insurance: You get $0 in rent for 6 months, but you still have to pay the mortgage.
- With Landlord Insurance: The insurer pays you the Fair Market Rent for those 6 months while the building is being fixed.
3. Liability Protection: Protecting You from Tenants
Tenants can be litigious. If a tenant slips on an icy walkway or their guest gets injured on your property, they can sue you for medical bills and damages.
Landlord insurance includes liability coverage to pay for legal fees and settlements.
Pro Tip: For extra protection, combine this with an Umbrella Insurance Policy to extend your liability limit to $1 million or more.
4. The Airbnb & Short-Term Rental Gap
Be careful in 2025. Most standard landlord policies require a lease of at least 6 months. If you rent on Airbnb or Vrbo for weekends, a standard policy might deny your claim.
You need a specific "Short-Term Rental" rider or a commercial policy designed for vacation rentals. Never hide this activity from your insurer.
Renting out a furnished apartment? Make sure you understand the difference between building coverage and contents coverage. Read our Homeowners vs. Renters Insurance guide.
5. What Does It NOT Cover?
It covers "perils" like fire, wind, and lightning. It does not cover:
- Maintenance: If the furnace breaks due to old age, you pay to fix it.
- Tenant's Belongings: If the tenant's TV is stolen, that’s their problem (they need Renters Insurance).
- Floods: Just like home insurance, you need a separate flood policy.
FAQ: Real Estate Investor Insurance
1. How much does landlord insurance cost?
On average, it costs 15% to 25% more than a homeowners policy. Expect to pay between $1,000 and $3,000 per year, depending on the location and building size.
2. Does it cover malicious damage by tenants?
Standard policies often exclude vandalism by tenants. However, you can buy extra coverage specifically for "Vandalism & Malicious Mischief."
3. Do I need insurance if the property is vacant?
Yes, but standard landlord policies might not cover it. If a home sits empty for more than 30 days, you usually need "Vacant Home Insurance," which is more expensive due to the risk of squatters.
4. Can I require tenants to have renters insurance?
Yes! In fact, most smart landlords write this into the lease. It reduces your liability and ensures the tenant's stuff is covered.
5. Is the premium tax-deductible?
Absolutely. Landlord insurance premiums are considered a business expense (Operating Expense) and are 100% deductible on your tax return (Schedule E in the US).
Disclaimer: Real estate laws vary by state. Always consult with an insurance broker who specializes in investment properties.