What Does Landlord Insurance Cover?

By Adam Bakonis and the Mercury Team

If you’re a landlord or thinking of renting out your first property, you’ll need specific insurance to protect your investment from property damage, liability claims, and income-related losses. “Unlike homeowners insurance, which covers owner-occupied residences, landlord policies are tailored for non-owner-occupied rental properties and help address the risks of renting to tenants,” says Adam Bakonis, Director, Product Management.

Here’s what you need to know about landlord insurance coverage, how much you need, and why it’s a smart move to protect your rental investments.

What Is Landlord Insurance?

Landlord insurance, also known as rental property insurance, provides coverage specifically designed for properties rented out to tenants. If a fire damages the home, hail ruins the roof and makes the home uninhabitable, or someone gets injured on the property, landlord insurance will kick in to protect you.

The biggest difference between landlord and homeowners insurance is occupancy.

Landlord insurance is for tenant-occupied properties.
Homeowners insurance is for owner-occupied homes.

Landlord policies also typically don’t cover personal belongings, i.e., your tenants’ TV, or living expenses for you. They do, however, cover lost rental income should that property temporarily become unrentable.

What Does Landlord Insurance Typically Cover?

Most rental property insurance policies include property protection, liability protection, and loss of rental income.

Rental Property Damage

Landlord insurance can include several types of property coverage, depending on what is damaged:

Dwelling coverage: Helps repair or rebuild the main rental structure, such as a house, condo, apartment, or townhouse, if it’s damaged by a covered peril.
Other structures coverage: Helps cover detached structures on the property, such as fences, sheds, and garages.
Personal property coverage: Helps cover landlord-owned items kept at the rental property, like maintenance equipment or furnishings.

Landlord Liability

Liability coverage protects you if you’re found legally responsible for bodily injury or property damage related to the rental property. It can cover medical bills, legal defense, and court settlements. For instance, it’ll protect you if a tenant slips on the stairs and sues you, or if a tree on your property falls and hits a neighbor’s car.

Loss of Rental Income

If there’s a fire with smoke damage and your rental property is temporarily uninhabitable, you may lose rental income. That’s where loss of rental income can help bridge the gap. This coverage, also called fair rental value, can help offset the rental income you’re losing while the property undergoes repairs.

What Does Landlord Insurance Not Cover?

While landlord insurance is a smart move, you’ll also need to understand what it doesn’t cover. Common exclusions and expenses that generally require separate coverage or remain your responsibility as landlord include:

Flooding or earthquake damage, for which you’ll need separate earthquake and flood policies.
Normal wear and tear, such as worn carpets, foundation cracks, and aging appliances.
Intentional tenant damage or negligence, such as malicious destruction of the property or failing to report a leak that leads to larger issues.
Damages to the property during long periods of vacancy, usually after a month or more.
Short-term rental income if you rent out your property through platforms like Airbnb or VRBO, unless your policy contains a short-term rental endorsement.
Tenant belongings, which they’re responsible for covering with renters insurance.
Certain dog breeds considered high liability risks.
Pest infestations, including damage caused by insects or rodents.
Mold, unless it results directly from a covered peril.

Landlord Insurance vs. Homeowners Insurance

Here are the key differences between landlord and homeowners insurance:

Feature	Homeowners Insurance	Landlord Insurance
Occupancy	Owner-occupied	Tenant-occupied (non-owner-occupied)
Personal property	Covers your personal belongings	Coverage for landlord-owned items is optional and must be added to the policy.
Tenant’s belongings	Not covered (tenant needs renters insurance)	Not covered (tenant needs renters insurance)
Liability	Covers injuries to others on your property if you’re negligent	Covers injuries to tenants or visitors related to the rental property if you’re negligent as a landlord
Loss of use	Pays for your temporary housing if the home is uninhabitable	Pays for lost rental income if the property is uninhabitable
Cost	Often more expensive due to broader property and personal property coverage	Can be less expensive, though liability exposure may be higher

Keep in mind that if you’re renting out a property you previously lived in, you’ll need to switch from homeowners to landlord insurance to ensure you have the right type of coverage.

Do Landlords Need Renters Insurance for Their Tenants?

It’s the tenant’s responsibility to obtain renters insurance to protect their property and personal liability. Many landlords do require their tenants to have renters insurance as a condition of their lease. While renters insurance doesn’t cover the landlord’s building, it can reduce disputes over tenant-caused damage and provide an additional layer of financial protection for both parties.

How to Choose Landlord Insurance Coverage

When selecting a landlord insurance policy or reviewing coverage, consider the following:

Property specs: Age and condition of the property, location, and costs to replace the dwelling.
Rental arrangement: Whether you rent the unit long term, how many units it has, and whether it’s furnished.
Liability risks: Such as a rotting deck, slippery stairs, a swimming pool, a trampoline, or detached structures.
Coverage limits: Cost to rebuild the property after a covered loss, replace the landlord’s belongings, and provide adequate liability protection.
Added coverage or endorsements: Optional coverages such as ordinance or law coverage, equipment breakdown, sewer or drain backup, flood, or earthquake insurance.
Deductibles: How much you can comfortably afford to pay out of pocket after a claim.

Landlord insurance is just one layer of protection for your rental property. Understanding your insurance needs and coverage while maintaining your rental can help safeguard your investment and guarantee a steady income. Reach out to Mercury today to learn more about landlord insurance.

Frequently Asked Questions

Does landlord insurance cover tenant damage?

It depends on the nature of the damage. Rental property insurance typically covers sudden, accidental damage caused by tenants if it's tied to a covered peril. It usually doesn’t cover normal wear and tear, intentional or malicious damage, or damage stemming from tenant neglect.

Is landlord insurance required by law?

No, landlord insurance isn’t usually required by law, but it’s often a requirement by mortgage lenders when you acquire or refinance a property. Even if not legally mandated, carrying adequate coverage is a smart idea in order to protect your investment.

Does landlord insurance cover short-term rentals?

No. Landlord insurance generally doesn’t cover short-term rentals, such as a vacation home rented through Airbnb. In that case, the property is considered a business, and you’ll likely need commercial coverage, short-term rental insurance, or a separate short-term rental endorsement under your Landlord policy.

Adam Bakonis

Senior Product Manager at Mercury Insurance

Adam Bakonis is a Senior Product Manager for Mercury Insurance, overseeing homeowners and landlord products for California. Bakonis originally joined Mercury as a casualty adjuster and has worked in multiple roles, including claims examiner, property field adjuster, claims project and analytics manager.