5 Types of Insurance Every Rental Property Owner and Real Estate Investor Should Have

Whether you’re investing in multiple rental properties or own a single-family rental, having the right landlord/rental property insurance is a vital component of protecting your earned income. Rental property insurance can offer coverage against liability, loss or damage of property, and more. And not having this type of protection puts you at financial risk that can put a significant dent in your earnings.

Here’s five types of coverage every rental property owner should consider (and a few runner-ups for good measure.)

Number 1: Landlord insurance

Landlord insurance can be thought of as comprehensive coverage that typically includes the three main types of protection real estate investors should look for. This includes:

• Dwelling and personal property coverage 
• Liability protection
• Loss of income protection

Additional types of protection may be a part of a landlord insurance policy or available as add-ons such as malicious mischief coverage for protection against loss or damage due to vandalism or theft.

For example, Steadily landlord insurance offers highly customizable policies that extend protections for perils and events not typically covered with your standard policy. Steadily is rental property insurance built for landlords, by landlords, with the multi-property owner/investor in mind. 

With Steadily, you decide which types of coverage you need. Start with the basics -- injury, liability and property protection -- and build your policy from there.

Number 2: Sewer line/buried utilities coverage

Most standard rental property or homeowners insurance policies do not include sewer line protection, also known as buried lines coverage. But many offer it as an add-on, with other providers offering it as a standalone policy. 

How do you know if you need sewer line coverage? Utility companies are only responsible for the line once it reaches public property, like the street. The property owner is responsible for repairing any damage to the line up to the house. That means you’re on the hook for repair costs for buried lines on your property. 

Older structures are especially ripe for a financial safety net as these types of properties are more likely to have pipes made from materials prone to damage. But insuring any property with this type of coverage is a worthwhile consideration for any rental property owner or investor. If a sewer line or other underground utility line becomes damaged, collapses, or is otherwise in need of repair or replacement, it can cost a solid chunk of money. 

Even something as innocuous as overgrown tree roots can have you on the line for thousands of dollars, and if you have tenants, this may be a pressing repair if damage does occur. Be sure to check with your provider to see if they offer sewer line or buried utilities coverage.

Number 3: Flood insurance

As with home insurance, conventional landlord insurance doesn’t typically offer protection from damage or loss caused by flooding. This type of coverage is often offered as an endorsement or a standalone policy. While a standard rental property policy may offer protection for certain types of water damage (like if a pipe breaks under the sink and floods the kitchen), you will likely not see financial protection if the same kitchen is damaged as a result of a flooding weather event. 

According to the National Flood Insurance Program, or NFIP, you could be facing up to $25,000 in damages from a single inch of floodwater without coverage. If you finance or get a mortgage for a property located in a high-risk area for flooding, your lender is federally mandated by law to require you to carry flood insurance as a stipulation of the loan. This requirement is determined by which flood zone your rental property is in, which is designated by FEMA using flood maps. 

Number 4: Loss of income coverage

Loss of income coverage offers a financial safety net for lost rental income when you are unable to rent out your property due to a covered peril. If, for example, your property experiences a covered fire loss and you aren't able to have tenants for six months while it is being rebuilt, this coverage will protect the income you lost from the rental property during that time.

This type of coverage is, at times, built into a standard landlord insurance policy. Others, like Steadily, offer this type of coverage as an add-on. Be sure to know what constitutes a covered peril or loss when considering this type of protection. 

Number 5: Tenant rent guarantee insurance

A major risk of owning or investing in rental properties is the renting part -- if your tenants don’t pay their rent, you may face a loss of income or return on your investment. And while many standard landlord policies offer loss of income protection due to loss of physical use of the property, the same isn’t always true for loss of income due to a tenant shirking their agreement. 

While the next logical step is evicting a non-compliant tenant, eviction is a long process (that will likely cost you even more money.) Going months without the expected income from a rental property can be a huge financial stress for a landlord. And if your tenant moves out without paying AND breaks their lease early? Finding and vetting a new tenant can also be a lengthy and costly process. That’s where rent guarantee coverage comes into play. Also known as rent default insurance, this type of policy will replace loss income due to non payment of rent, typically for an agreed-upon term, such as months of unpaid rent.

Many providers offer this as a standalone policy -- it can offer you peace of mind that your investment will continue to generate income even if a tenant doesn’t keep up their end of the deal. However, purchasing this type of coverage can be costly and not always worth it in the end -- be sure to weigh cost vs. reward here to make the right choice.

Bonus: Umbrella insurance

Umbrella insurance is a general type of personal or business policy that offers an “umbrella” over gaps left by maximum coverage limits of other types of insurance. This is a smart idea for anybody who is exposed to increased financial risk, such as real estate investors and property owners. 

For example, a person who owns multiple properties will likely have liability coverage. But their financial risk may exceed the maximum liability coverage amount within your rental property or business insurance. If your policy has a liability limit of $1 million, and you need $1.5 million to cover your potential losses, you may need to purchase a personal umbrella policy. 

Umbrella insurance is a general type of personal or business policy that offers an “excess” above and beyond what your underlying policies may cover. This is a smart idea for anybody who is exposed to increased financial risk, such as real estate investors and property owners.

The more your personal wealth increases and the more assets you own, either personally or through an LLC, the greater exposure you have to potential personal and premises liability. Essentially, the more assets you have, the more you should consider umbrella coverage as part of your real estate investing insurance strategy.

Your dwelling policy likely has a nominal amount of liability coverage, but that will only go so far in the event of a large claim. You may want to consider increased limits of $1 million or more in case the underlying limits are exhausted. This policy will stack on top of the liability limits on your landlord policy and can sometimes also sit over your personal home and auto policy.This policy will bridge the gap between maximum liability coverage limits of your existing insurance and your actual risk.

Other Types of Insurance to Consider

Aside from the listed coverages above, it’s wise to at least consider the following types of coverage, too, especially if you’re investing in multiple properties or working with others.

Builder’s risk insurance

Also known as course of construction insurance, this offers certain types of protections while your rental property is under construction or renovation. Many Steadily policyholders refer to this as renovation insurance or fix and flip insurance. Most standard landlord policies will not provide coverage for a property that will be vacant for an extended period, so this policy is designed to protect your investment until it's ready to be sold or rented out.

Covered perils often include property damage due to perils like fire or vandalism. Financially, it can protect you if your property is damaged during the course of construction in a way that causes you financial loss. 

Difference in conditions policies

Similar to flood coverage, many standard landlord policies don't include coverage from natural catastrophes like earthquakes, wildfires and other “differences in conditions.” This is because offering insurance for damage or loss resulting from rare but potentially highly damaging events can increase an insurer’s risk exponentially. Consider adding these extra elements to your standard rental property insurance policy, especially if you live in a high-risk area for these weather events.

In the highest risk areas, these coverages may only be available through a state subsidized fund. You can talk to your Steadily agent about adding coverage for catastrophic events.

Insurance to Require from Your Tenants

While the coverage above will keep you and your property safe from liability and damage, you’ll want to consider making the following types of coverage mandatory for your renters to fill the gaps.

Renters insurance

Renters insurance offers your tenant coverage for their personal property and liability for incidents occurring on the property. Unlike homeowners insurance, it does not offer dwelling coverage (but your landlord insurance will take care of that.) Renters insurance may also offer loss of use coverage, which will pay for your tenant’s additional living expenses they may incur if the property is uninhabitable due to a covered claim and the insured has to relocate temporarily. 

Requiring this type of coverage for your tenants is a win-win for both parties. It will protect your tenant’s personal property, but may also indirectly assist you because it can provide the first line of liability defense for claims occurring on premises before it dips into the liability limits under your landlord policy. 

Tenant legal liability insurance

Tenant legal liability insurance works like force-placed renter’s insurance but it is designed to benefit you as the landlord instead of the tenant. If the tenant does not provide proper renter’s insurance, you can enroll your properties in a tenant legal liability policy that will provide liability limits for a nominal monthly premium. Landlords often charge this monthly premium back to the tenant in the rent.

The tenant legal liability policies can include a small amount of coverage for the tenant’s personal property, but it is important to note that these policies are designed to benefit the landlord, not the tenant. A tenant will usually be better off purchasing a traditional renters policy versus accepting the force-placed tenant legal liability.

Pet insurance

Pet insurance is a type of coverage that offers reimbursement for medical-related pet expenses. While this may seem like a strange type of coverage to require a tenant to carry, many landlords are making it standard as part of their agreement to allow a pet. Pet emergencies can be very expensive, and a large, unexpected expense can hinder a tenant’s ability to pay their rent. 

Also, if your tenant’s pet somehow injures itself on your property, and your tenant doesn’t have pet insurance, they may try to recoup what they spend from you. Rather than tying up your rental property insurance policy with this type of legal claim, it’s still a wise idea to request pet insurance as part of the lease agreement. This type of coverage can fill gaps that could otherwise lead your tenant to make financially-driven decisions that could have a negative impact on you.

Protect Your Rental Property Investment with Steadily

Protecting your rental property investment with the right types of insurance will give you a leg up on risk management -- an important part of any investment or business strategy. Getting customizable coverage from Steadily gives you access to coverage built for landlords, by landlords. Cover all your bases and then some with Steadily Landlord Insurance.