Landlord insurance is an important piece of protection for owners of rental properties or who rent out rooms in their houses. Of course, an important consideration in establishing the right coverage is the cost.
There are three different forms of landlord insurance with different levels of coverage and different levels of cost. Landlord insurance is generally more expensive than a standard home insurance policy due to the added risk of having a tenant living in the house.
How much does landlord insurance cost?
There are numerous factors that go into the premium price of a landlord insurance policy including location, age and condition of the property, and other factors. No two policies will be exactly the same. On average the cost of a landlord policy will be higher than a standard home insurance policy due to a tenant who is not the owner living in the home. This poses an additional risk that damage will occur; therefore, insurance companies ask for a higher premium to protect themselves from the higher risk. Tenants typically don’t have the same level of care or vigilance for the home because it is not their property. This can potentially turn minor damages into major damages if the tenant does not immediately notify anyone of any sort of damage such as a leak.
Let’s take a $250,000 house, for example. On average a standard home insurance policy will cost somewhere just under $1,400 per year while for that same house, the average cost of a landlord policy is somewhere just under $1,800 per year. An additional cost of about $400 per year for the same property. This can certainly be an important factor when you are considering renting out a property.
DP-1 vs DP-2 vs DP-3
There are three types of landlord insurance DP-1, DP-2, and DP-3. DP-1 provides the least amount of coverage and is the least comprehensive of the policies, which means that it will also be the cheapest of the three. On the flip side, DP-3 is the most comprehensive and encompassing policy and therefore the most expensive of the three policies with the DP-2 policy somewhere in the middle. A landlord insurance policy will cover the dwelling and any attached structures and other structures, loss of rental income, and personal liability that may arise for the landlord due to an injury on the property. The coverage is quite similar to a standard home insurance policy with some differences. Many insurers will also offer additional coverage, which, if added to a policy will increase the cost of it.
What factors affect the cost of landlord policy?
When you are looking to obtain landlord insurance for a property, you can expect to pay about 25 percent more for the landlord policy than you would for a standard home policy for that same home, according to the Insurance Information Institute.
Many factors other than having a tenant are taken into account when determining the cost of the insurance policy. The length of the rental agreement can play a role in the premium price as well as the location, age of the home, and size of the home. Short-term rental will typically lead to a higher insurance premium than longer-term rental periods due to more than one or two tenants living in the home throughout any given time frame.
Obviously, if you want a higher amount of coverage you will pay a higher premium than if you want a lower amount of coverage. If you decide to opt for a higher deductible, you can lower your premium, because you are responsible for more out of your own pocket.
There are a few things you can do to lower the premium of a landlord policy. You can get discounts for having a security system, fire sprinkler system, new roof, and other safety features or modern safety measures in place. A factor that can raise your premium rate is the claims history of the property itself. If the property has an extensive claims history it can significantly raise the premium rate of the policy for the landlord. All of these factors should be taken into account. Some steps like implementing a security system may be an easy way to set yourself up for a lower landlord policy premium.
