How Much Landlord Insurance Do I Need? 10 Essential Tips

Buying homeowners insurance coverage for your primary home is simple and provides protection for your dwelling and your belongings. But what if you rent the property out to others and don’t live there yourself? Do you still need the same type of coverage?

In this case, buying landlord insurance is the right answer. This policy will protect you and provide coverage for your home if it is damaged or destroyed by a covered peril. However, it doesn’t work quite the same as standard homeowners insurance: Since you aren’t living in the home, it won’t protect any of the stuff inside. Your renters will also need to buy their own form of protection to provide them with personal belongings coverage and even help with displacement costs.

If you own a home that you then rent to someone else, here’s how to choose the right insurance policy and answer the question of, How much landlord insurance do I need?

Key takeaways

• Many home insurance carriers offer a landlord policy, also called DP-3 coverage.
• Landlord insurance only covers the actual dwelling, including structures and personal liability protection.
• Personal property (belongings) inside the home are not protected by a landlord policy.
• If your renters want coverage for their stuff, they will need to buy a separate renters insurance policy (called an HO-4).
• You can expect to pay about 20% more for landlord insurance on a property than for a typical homeowners insurance policy for the same home.

How to determine how much landlord insurance I need

The amount of landlord insurance coverage you need depends on certain details, namely how much your home is worth, what it would cost to rebuild, and how much you want to protect yourself against in terms of personal liability coverage. Your landlord insurance coverage options may also vary by location, the details of your home, and the insurance company you choose, so you can work with your insurer to calculate the right level of coverage for your situation.

You might be wondering, Do I need landlord insurance in the first place? Well, the primary purpose of landlord insurance is to protect one of your biggest assets: the real estate asset itself. If the home is destroyed by a fire, windstorm, or even an explosion, your landlord insurance coverage will protect you the same way a standard homeowners insurance policy would. Even though you don’t live in the home, this policy will pay to repair, rebuild, or replace the dwelling after a covered loss. 

The other purpose of a landlord policy is to protect you, the property owner, against personal liability claims. If your tenants suffer an injury or loss, you could be held liable for damages. And if one of their guests is injured on your property, you could still be held liable even though you don’t live there. For nearly all homeowners, this makes landlord insurance a very wise idea. 

Factors that impact how much coverage you need

Buying the right amount of landlord insurance means looking at your overall financial picture and the losses you could potentially suffer. As with homeowners insurance coverage, the policy that’s right for you may not be the same as your family members, your best friend, or even your next-door neighbor. 

The amount of landlord insurance coverage that’s right for you hinges on a few key factors. These include:

• What your home is worth — Your insurance company can help you determine your home’s rebuild cost, which may be different from its current market value. Things like labor expenses and materials costs can vary by location, and you may even want to add a buffer (with higher coverage limits or an extended replacement cost coverage rider) in case these costs rise due to inflation or a sudden shortage. 
• The details of your home — Your property may be susceptible to certain damages depending on how it was built, the materials used, where it’s located, and even its age. If you own a home with a pool, for example, you might want to increase your personal liability coverage in case someone gets hurt on the property.
• The type of tenants you have — Your insurance company may require different coverage if you have long-term (traditional) tenants staying in the home for six months or more, versus short-term tenants that only stay a few days or weeks. If you rent your home out on Airbnb, VRBO, to traveling nurses on Furnished Finder, or on other platforms, expect your carrier’s requirements to vary. 
• Where you live — Your location matters greatly when calculating insurance coverage. Your home’s replacement cost is influenced by your local market, as are material and labor expenses. You may also be required to buy certain coverages if you live in a high-risk area, such as a state prone to hurricanes or wildfires.
• What you can afford — The policy that’s right for you may also be influenced by your landlord insurance cost. While there’s a minimum amount of protection you’ll need to buy (especially if you have a mortgage lender that will require dwelling coverage), your budget may affect which additional coverages and limits you can afford. 
• Your other policies — In some cases, you may have other insurance — like an umbrella policy with liability protection — that offers overlapping protection. If this is the case, you may or may not need to buy as much coverage with a new policy.

How much building insurance coverage do I need? 

Most homeowners insurance claims are related to property damage, which makes sense since repairs or even a total rebuild of your home after a loss can be prohibitively expensive. To protect yourself, buy a landlord policy with enough building insurance coverage for any issue that might arise. 

When calculating your building insurance needs, consider your property's market value. While that is not the same as your rebuild or replacement costs following a total loss, it does at least give you a good starting point. This value is contingent on things like your home’s size, location, features, upgrades, and materials. Be sure to also factor in any recent renovations that might not already be included in your market value, such as a recent kitchen update or a new roof.

Then, you and your insurance company can work together to refine your policy coverage from there. Are you in an area prone to certain natural disasters? Following a widespread disaster, materials and labor may be hard to come by, temporarily raising those costs significantly. You may want to raise your coverage limits or add extended coverage protection to account for this. 

How much liability insurance coverage do I need? 

Even though liability losses only account for about 2% to 3% of property insurance claims each year, they can be incredibly costly. If you don’t have adequate landlord liability insurance, you might find yourself personally on the hook for these losses. 

So, how much liability insurance should a landlord have? It really depends on a few important factors:

• The details of your home — What is your property worth? Are there special risks on site, such as a pool, raised deck, etc.? Do you allow your tenants to keep pets or put a trampoline in the backyard? Is there a high incidence of vandalism in the area? All of these can increase the risk of injuries and, in turn, your potential liability.
• How the property is owned — Some landlords own their home personally, while others hold it in an LLC, trust, or other financial shelter. Consider the home’s ownership status and how that opens you (or your business) up to liability when building your policy’s coverage. 
• The tenants you attract — While not a hard and fast rule, there are some types of tenants that can pose a greater risk than others. For example, families with small children or elderly tenants might be more prone to accidents than 30-something couples. Large families and those with higher foot traffic could also pose a greater risk, suggesting the need for higher policy limits.
• Whether you have other coverage — You might not need as much landlord insurance coverage if you also have other policies that protect you from liability. A large umbrella policy, for example, can shield you from losses above your policy limits and generally includes your vehicles, homes, etc.
• Your financial situation — Ask yourself what you can afford to lose. If your tenant or their guest were injured in your home and sued you for damages, could you personally afford to pay their bills or cover your legal fees? Without landlord liability coverage, they could potentially come after your personal assets, such as savings accounts or even your rental home.  
• Your own peace of mind — Around $1 million in coverage is a common landlord liability limit. However, if you own a high-value home or just want added peace of mind, consider bumping your policy limits if your budget allows.

How much loss of rental income coverage do I need? 

Property damage and liability aren’t the only potential losses to note. You could also be on the hook for any loss of rental income if your home is damaged or destroyed and your tenants need to move out. While your policy will cover the repair of your home, it won’t automatically cover the rent payments you’ll lose or the mortgage payments you still need to make.

To calculate the right amount of coverage for you, consider:

• How much you have in savings to cover missed rental payments
• The delta between your mortgage payment and your current rental income
• Whether your home/location is prone to certain disasters
• How long you want to protect yourself 

Some smaller issues — like a burst plumbing pipe — might only require your tenants to move out for a few days or weeks. A devastating tornado, on the other hand, could displace them permanently, leaving you holding the bag for the foreseeable future until the home is rebuilt and new tenants can be signed. 

It’s always wise to plan for a worst-case scenario. For many landlords, this means buying at least enough loss of rental income coverage to protect you (and the value of your mortgage payments) for six to 12 months or more.

Consider additional coverage options

Most insurance companies offer endorsements, also called riders, that you can add to your base policy for additional protection. These can help protect your property against perils that aren’t automatically covered or may offer boosted protection against the perils that are already included.

Depending on your budget, location, and the details of your home, some additional coverage options include things like:

• Mold damage coverage
• Hurricane insurance
• Flood insurance
• Wildfire insurance
• Water and sewer backup protection
• Service line coverage

Still have questions?

Want to know even more about landlord insurance and your coverage options? Here are some of the most frequently asked questions.

What is the most common amount for renters insurance?

Renters insurance, which protects your tenants and their belongings, generally starts with $100,000 in liability protection. Renters can choose their other coverage limits, including personal belongings coverage and additional living expenses (ALE) coverage, according to what they personally own and their budget.

How much renters insurance should a landlord require?

Landlords should consider requiring their tenants to purchase renters insurance coverage since a landlord policy doesn’t protect their belongings or provide them with the necessary liability protection they need. Landlords may want to require $50,000 or more in personal belongings coverage and at least $100,000 in liability protection. If the property has higher risk factors — like a family dog, trampoline for the kids, or hot tub/pool — landlords might want to require higher liability limits.

Is the amount of dwelling coverage determined by the property’s market value?

Insurance companies will consider a property’s market value as a starting point when calculating the correct level of dwelling coverage. This doesn’t always account for materials costs, labor expenses, or recent upgrades, so you and your carrier may need to work together to reach the right coverage limits.

Is it worth it to shop around for landlord insurance?

No matter what type of insurance you’re buying, it’s always smart to shop around before making your decision. This allows you to see all of the available coverage options out there and compare pricing to find the perfect policy for you. Homeowners should also consider price shopping each time their policy is up for renewal to ensure that they’re always locking in the best premiums for their home’s coverage.

How much liability insurance do I need for a rental property?

The general rule of thumb is that your rental property should be protected by at least $1 million in liability coverage. If your budget allows, you might even consider bumping that number up if you have a home or tenants with higher risk factors — such as a pool, pets, small children, etc.