Landlord Insurance vs. Homeowners Insurance: What You Need to Know



For most Americans, their homes are their single largest asset. It’s no wonder that around 95% of property owners have homeowners insurance, according to a survey done by the Insurance Information Institute.

However, does homeowners insurance cut it when it comes to rental property investments? The answer is no. In fact, homeowners insurance policies are only designed to offer protection for owner-occupants.

Insuring your rental with standard homeowners insurance will be a waste of money: it will leave you paying for premiums that won’t cover your rental in the event tragedy strikes.

Every passing year, many inexperienced landlords file a claim that involves their investment property with their standard homeowners insurance. The result is disappointing – and at times can cause financial ruin.


Landlord Insurance vs. Homeowners Insurance

When it comes to insurance, Denver investment properties largely differ from owner-occupied properties. For example:

  • If you own an investment property in Denver, homeowners insurance won’t cover the medical expenses of a tenant that was injured on the property. A landlord policy, however, may be able to provide that benefit.

Let’s take a look at some of the things that you should look for in a landlord insurance policy.


Different Rental Dwelling Policies

Clarity is essential when it comes to an insurance contract. Now, there are three essential landlord insurance policies.

The first one is commonly known as dwelling policy 1, DP-1. This covers all perils that are named in the insurance policy. These policy covers lose at actual cash value, meaning it considers annual depreciation. This is opposed to replacement cost.

DP-2 covers more perils as opposed to the DP-1. Make sure that you check the policy for all the perils it covers.


The third one is the DP-3, DP-3 is considered the best insurance policy for rental owners. This is an “open peril” policy and covers all perils, with the exceptions of a few. Some of these exclusions include the following.

  • Neglect
  • Damage resulting from earth movement, sinkholes, and earthquakes
  • Water damage or flood damage covered via the National Flood Insurance Program
  • Intentional loss
  • Nuclear hazards
  • Act of war or terrorism
  • Power failure

DP-3 is also a replacement cost insurance, meaning all repairs will be covered and the property’s depreciation is not considered.

Most landlords with up to three family properties usually choose the DP-3 policy. Those with more than three, on the other hand, often prefer a commercial insurance policy. If you own short-term rentals or resort properties, make sure to mention that to your agent.

He or she should be able to offer you a custom coverage based on your specific needs.


What do Common Landlord Insurance Policies Cover?

The following are some of the main clauses to be in the lookout for when shopping for landlord insurance.

1. Loss of Income

Landlord insurance will usually cover your loss of income in the case of a covered peril, such as fire or storm. If such a case were to occur and you were not covered, you could suffer significant financial harm.

Landlord insurance usually offers income protection in the event your property becomes uninhabitable due to a covered loss.

2. Loss of Use

In case of serious property damage, you may need to find your tenant an alternative place to stay as the property gets repaired. A landlord insurance policy may be able to cover that expense.

3. Guaranteed Replacement Cost

Check your policy to see if it has a clause on guarantee replacement cost. If it does, then you are guaranteed that you’ll get 100% reimbursement for the cost of bringing back your property to its initial condition.

4. Liability Insurance

Typically, landlord insurance offers more coverage than a homeowners policy. As a landlord, you risk lawsuits from renters for all manner of things.

When you’re fighting such lawsuits, your landlord liability insurance will usually be able to cover the judgments and settlements costs, depending on the policy’s liability limit.



How Much does a landlord Insurance Cost?

Of course, landlord insurance doesn’t come free. You can expect to pay around 25 percent more for landlord insurance, according to information from the Insurance Information Institute.

Generally speaking, for most landlord insurance policies, the average annual premium is about $1000.


As you can see, as a rental property owner in Denver, having landlord insurance coverage is key. It will help you gain peace of mind against the unexpected.