Homeowners Insurance vs. Landlord Insurance: What’s the Difference?
Before you rent out all or a portion of the property you occupy, or a property wholly separate from your own domicile, it’s important to know the different kinds of insurance you might need to carry based upon your situation. While landlord insurance might be slightly more expensive than a typical homeowner’s policy, it will protect your home and leasing business in several potential scenarios discussed below. Here’s some basic information on both insurance types.
Homeowners insurance typically covers damage to your home from severe weather or fire, damage to personal property (including theft), and liability for certain injuries sustained in the home. Basic coverage is often adequate for a homeowner not involved in leasing activity, but if you do choose to become a landlord, your existing policy might not cover every potential liability on your property, and coverage can vary by state. For anyone researching homeowners insurance in New Jersey, for example, things like injuries sustained by tenants while using a swimming pool or trampoline might not be covered by a basic policy, and requires additional coverage.
Sometimes people rent rooms or their entire homes for one-time events happening nearby, such as the Super Bowl or major festivals like South by Southwest. The Insurance Information Institute notes that short-term or event rentals of your home might be best covered under your own homeowners insurance policy, though it may be possible (or even required) to obtain a rider or addition to your existing policy that specifically covers short-term leasing activities.
Homeowners insurance is often provided as a means of replacing the physical structure and personal belongings in the event of a catastrophe. These policies are typically meant to restore a home to livable condition for the occupants. However, a landlord may have several additional costs and liabilities in this case, including lost rental income and potential lawsuits, which would not be the case for a typical homeowner. If you’ve become a landlord, and the loss of rental income and/or the potential for legal liability would have a major impact on your financial situation, then you may want to research a landlord insurance policy.
Typically, if your leasing activities amount to a dependable rather than sporadic income, it may serve you well to treat your rental as a business (if you haven’t already), and every business needs some form of insurance. If you plan on renting your home through a service like Airbnb, this is more likely to be considered “business activity” that would be covered by a landlord insurance policy. In fact, there are specific policies devoted to exactly this scenario.
Landlord insurance policies are more likely to cover things like the loss of rental income, legal expenses for landlord/tenant litigation (including evictions or liability suits), vandalism, or even additional coverage in the event of theft of the tenant’s belongings (though every tenant should be encouraged to purchase their own renter’s insurance policy). This type of coverage is geared toward protecting both the structure of the home as well as the business of leasing it. In some cases, since such a policy might be considered a business expense, it may also be tax-deductible, which is another potential benefit that you should discuss with a tax preparer.
If you have chosen to operate as a business, then landlord software might also be a helpful way to track expenses like repairs and landlord insurance as well as managing income and generating year-end tax reports for your accountant or tax preparer. Though you might incur minor expenses, choosing the right tools can end up saving you a great deal of money in the long run.