Landlord Insurance vs. Homeowners Insurance: What’s the Difference?

Homeowners insurance is the clear choice for a primary residence. While you’re not legally required to have this policy, most banks mandate it for people who still have mortgages. 

The decision isn’t as straightforward if you buy an investment property and want to have a tenant on the premises. If you are a rental property investor, you will have to decide between landlord insurance and homeowners insurance. This guide will cover how these types of policies work.

What Is Landlord Insurance?

Landlord insurance offers financial protection for real estate investors in the event the property gets damaged or there is lost income resulting from a qualifying factor such as property damage that makes the unit uninhabitable. It’s common for a policy to cover damages caused by tenants, liability claims and specified natural disasters. 

Most lenders require landlord insurance if you have a mortgage on the property. However, this insurance policy is not required once you pay off the mortgage. This policy does not cover a tenant’s belongings or eviction costs. You can only get landlord insurance for a rental property.

What is Homeowners Insurance? 

Homeowners insurance is exclusively for a homeowner’s primary residence and any vacation homes without landlord insurance. This insurance policy also offers financial protection for qualifying natural disasters. 

Policyholders get further benefits, such as coverage for stolen possessions, personal liability coverage in case someone gets hurt on the premises and damage to the house or the exterior. The bank will likely require that you have this policy if you still have a mortgage.

Major Differences Between Landlord and Homeowners Insurance

Landlord and homeowners insurance both aim to protect people who own real estate. Understanding the differences between these policies can help you decide which one is right for you.

Cost 

Landlord insurance is more expensive than homeowners insurance. A landlord insurance policy has additional protections, such as lost income from a qualifying incident. This policy won’t cover your lost income if a tenant loses their job and can’t make payments. However, any property damage that makes the property uninhabitable can result in the insurer covering your lost rental income.

Homeowners insurance is less risky for an insurer than landlord insurance. Fewer things can go wrong with a homeowners insurance policy compared to landlord insurance. That’s why homeowners insurance is cheaper than landlord insurance.

One-Time Short-Term Rentals

A homeowners insurance policy makes more sense for one-time short-term rentals. Given the short-term nature of the tenant, the property is usually a secondary home. When a short-term tenant is in the home, you can opt for short-term rental insurance. Platforms like Airbnb and Vrbo offer free coverage for property owners of up to $1 million in damages and personal liability expenses.

Long-Term Rentals

A landlord insurance policy is optimal for long-term rentals. Homeowner insurance and landlord insurance both protect the property. However, landlord insurance also protects your rental income in some cases. Landlord insurance is more expensive for a reason, and it’s a useful choice for pure rental properties instead of secondary homes that occasionally have tenants.

Vacation Home and Investment Property Rentals

Investment property rentals benefit from landlord insurance more than homeowners insurance. Vacation homes are a wild card because it depends on how frequently you have tenants and whether you use platforms like Airbnb and Vrbo. A short-term tenant approach justifies homeowners insurance, while long-term tenant set-ups should have landlord insurance if it’s not required.

If they remain vacant for most of the year, vacation homes should also have vacant home coverage. That’s because most homeowners insurance policies do not cover vacant homes. Vacancy is defined as a property that has been empty for 30-60 days. You may need this policy to ensure you are financially covered if something happens to your vacant home.

Personal Property Coverage

Landlord insurance and homeowners insurance both cover your personal property. You can receive financial compensation from qualifying damages and other incidents that take place. Landlord insurance does not cover the tenant’s property. If the tenant’s couch gets destroyed, your insurer will not help. In this case, the tenant will have to reach out to their insurance provider for compensation. If your couch gets destroyed by a qualifying incident, you will receive coverage from both of these policies.

Liability Coverage

Both policies offer liability coverage. If someone gets hurt on the property, your insurance company will step in and help with legal expenses. You will have to pay more money for a landlord insurance policy that has the same coverage because of the higher risk.

Get the Right Protection for Your Property

Landlord insurance and homeowners insurance both protect your property, give you personal liability coverage and offer additional perks. Many mortgage lenders require that you have one of these insurance policies. 

After you pay off the mortgage, you aren’t required to hold onto an insurance policy on your home, although it’s still a good idea to have insurance on what may be your most valuable asset. A good insurance policy can help you sleep better at night and financially recover if something happens to your investment.

Frequently Asked Questions