Insurance for Rental Properties

The biggest mistake new landlords make is thinking their homeowners policy still applies once they rent out the property. It doesn’t. The moment a tenant signs a lease, your risk profile changes, and your homeowners policy becomes almost useless. You need a landlord policy (also called a DP-3) or you’re exposed to major losses—and denied claims.

If you want a refresher on how a standard homeowners policy behaves, review homeowners coverage so you can see exactly what changes when tenants enter the picture.

1. What a Landlord Policy Actually Covers

A DP-3 policy covers the building itself, your liability as a landlord, and—most importantly—lost rental income when the home becomes uninhabitable after a covered loss.

• Fire, smoke, and explosion damage
• Wind, hail, and storm-related damage
• Water damage from sudden leaks (not slow leaks)
• Liability protection for injuries caused by property conditions
• Loss of rental income

Most DP-3 policies use replacement cost for the structure, but personal property (yours) may default to ACV. If valuation matters to you, review ACV vs replacement cost.

2. What a Landlord Policy Does NOT Cover

Tenant-related damage is heavily restricted. This is where landlords get blindsided:

• Normal wear and tear (never covered)
• Intentional tenant damage (usually excluded)
• Pet damage unless specifically endorsed
• Maintenance failures (roof leaks, rot, neglect)
• Tenant’s belongings (they need renters insurance)

Many new landlords find out the hard way that “tenant destroyed the carpet” isn’t an insurance claim—it’s a deposit issue.

3. Loss of Rental Income: The Most Critical Coverage

This is the part that saves landlords from major financial hits. If a fire, storm, or covered water loss forces your tenant out, the insurer pays you the lost rent until repairs finish.

• Typically paid monthly
• Triggers only when the home is uninhabitable
• Does not apply to tenant nonpayment

This functions similarly to ALE, but reversed. If you want to compare, read loss of use coverage.

4. Liability Risks Are Higher for Landlords

As a landlord, you’re responsible for providing a safe property. If a tenant or guest gets injured because of a hazard, your liability coverage steps in.

• Slip-and-fall injuries
• Structural hazards (stairs, railings, flooring)
• Electrical or plumbing failures
• Carbon monoxide or smoke alarm failures

Liability limits on landlord policies should be higher than the defaults. If you’re unsure where to set them, the liability coverage guide explains realistic limits.

5. Optional Coverages That Landlords Should Strongly Consider

• Vandalism coverage: Often excluded unless added.
• Malicious tenant damage: Separate and not automatic.
• Ordinance and law upgrades: Pays to meet updated building codes.
• Plumbing/sewer backup: A common rental property nightmare.

These add-ons plug the biggest holes in basic DP-3 policies.

6. When Homeowners Policies Flat-Out Deny Claims

If you rent your property without switching to a landlord policy, insurers treat it as a material change in risk. That means:

• The insurer can deny the claim entirely
• They can retroactively cancel the policy
• They can refund premiums instead of paying out

Renting without the correct policy is one of the fastest ways to void coverage.

7. When to Update Your Landlord Policy

• After renovations or major upgrades
• If you add furnished items you want covered
• When your rental income increases
• After tenant turnover or new leasing terms

The goal is simple: protect the structure, protect the income stream, and protect yourself from liability. A standard homeowners policy does none of those once tenants get involved.