By Jeff Keleher | Published Jul 29, 2022 10:30 AM
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Owning a rental property can be very appealing due to the significant financial opportunities this kind of business venture presents. Rental properties offer recurring passive revenue, enabling property owners and landlords to gain new income streams and bring in consistent rental income from month to month.
Renting out a home, condo, or apartment to a third party also comes with certain financial risks and liability concerns, however, and property owners may need specialized insurance to protect themselves and their assets. It’s unlikely that a standard homeowners insurance policy will cover rental properties, even if that property is a vacation house or a section of the policyholder’s primary residence. Renting property to a tenant is considered a business activity, and so homeowners insurance companies often exclude rental agreements from coverage.
Rental property insurance may be needed in these cases to provide coverage for property damage, personal liability, and loss of income if the policyholder is unable to bring in rental income due to a covered peril. The terms “rental property insurance” and “landlord insurance” are sometimes used interchangeably, but a property owner doesn’t need to manage multiple rental properties, work with several tenants, or rely on rental income as their sole source of income to use this type of coverage. Those who want to rent out a vacation property, a condo located in the heart of the city, or a property purchased for the sole intent of renting it out can benefit from the coverage provided by the best rental property insurance.
Professional landlords can use this type of insurance as well, but they may want to consider dedicated landlord insurance that’s tailored to their particular circumstances as property owners managing multiple properties. Regardless of their specific situation, finding the best rental property insurance often requires property owners to first assess what kind of coverage they need and then determine which insurance companies can deliver those terms at the right price point.
When researching any kind of insurance, there are some evergreen factors that prospective customers may want to consider. Eligibility and availability are chief concerns, so it’s usually important to check that insurance companies provide the right kind of insurance to a customer’s particular area—and that the customer will qualify for a policy given their specific circumstances.
After initially narrowing down their list of options, insurance shoppers may want to think about factors that could impact the cost of coverage, including premiums, deductibles, and potential discounts. The type and extent of coverage is important as well, as some rental insurance policies may include more standard coverage than others. A company’s financial stability could be a worthy consideration too so customers can feel confident in an insurance provider’s ability to meet their financial obligations—consistently paying out claims without delay, for example.
Checking that an insurance company provides rental property insurance in a particular state or ZIP code may help property owners avoid wasting them trying to get a quote or policy information for coverage that isn’t offered in their area. When shopping for insurance for multiple rental properties in different locations, it may be especially important to verify coverage areas; some companies may offer coverage in some states but not others. In addition, an insurance company may service a particular state, but only offer rental property policies in select ZIP codes.
When choosing one of the best rental property insurance companies, it can be very helpful to get a quote from several providers. As with homeowners, auto, or renters insurance quotes, rental insurance quotes may be available over the phone, through the company’s website, or by speaking to a local agent. Not all insurance companies will necessarily support each of these quote processes, though—and in some cases, certain quote processes may be limited to particular insurance offerings. For instance, a company may have an online tool for customers to get a homeowners insurance quote, but not a rental property quote.
It’s important that property owners keep their policy terms consistent when gathering quotes, as slight deviations in coverage could change insurance cost estimates. That also holds true for information about the policyholder or the property since certain details could impact insurance premiums—for instance, properties with newer roofs may qualify for a lower insurance rate.
Filing a claim can be very stressful for policyholders, especially if they are seeking a significant amount of money to cover expensive repairs to their property. If and when it comes time to file a claim on their rental insurance, property owners may appreciate the peace of mind that comes with knowing their provider will process and pay out the claim as quickly as possible. To that end, a seamless and easy-to-use claims process may be a major priority for some property owners in their search for the best rental property insurance.
Insurance companies may handle claims in a variety of ways, and some may have limited options for filing a claim. For instance, policyholders may only be able to file a claim over the phone during normal business hours. In other cases, providers may offer multiple ways to file a claim, including online, over the phone, with a local agent, or through a dedicated mobile app.
Rental property insurance policies often include dwelling, liability, and loss of rental income coverage as part of their standard terms, but this may not always be the case. During their search for home rental coverage, property owners may find insurance companies that provide more extensive coverage as part of a basic policy. In other cases, they may find that companies offer somewhat limited standard coverage, requiring add-on endorsements to expand coverage.
Purchasing extra endorsements to get the coverage they need could increase the cost of rental property insurance for landlords and rental owners. Furthermore, customers may not realize certain coverages they assume to be part of a standard policy are actually add-ons that need to be purchased separately and only realize their error when it comes time to file a claim.
Insurance companies often offer various discounts that can help customers lower their overall cost of coverage. Some of the most common discounts come from bundling multiple policies with the same provider. For instance, companies may lower a customer’s premium if they agree to bundle their home rental insurance or apartment rental insurance with a homeowners policy for their primary residence.
Specific to landlord and rental property insurance, companies may offer discounts to property owners who insure multiple properties with the same provider or use tenant screening services to minimize the risk of property damage, among other potential discounts. The availability of these discounts varies from provider to provider, so property owners will need to check with insurance companies to see what discounts they may qualify for given their particular circumstances.
Although property owners may be more likely to focus on premiums when shopping for rental property insurance, deductibles can also impact the cost of coverage. Insurance deductibles represent the amount that policyholders will pay out of pocket when filing a claim. Insurance providers may offer different deductible options, including flat rates and deductibles based on a percentage of the coverage amount.
In some cases, property owners may find that insurance companies have separate deductibles for different types of perils, such as one deductible for windstorm damage and one for all other covered perils. This would mean that it’s possible for policyholders to pay two deductibles for a single incident—a storm causing property damage due to both wind and hail damage, for example.
An insurance company’s financial stability can be a meaningful consideration when vetting rental property insurance. Companies with healthy finances may be more likely to meet their obligations to their customers, such as consistently paying out claims in a timely manner. In addition, companies that stand on solid financial ground are less likely to run into operational issues that could jeopardize their ability to continue providing insurance.
To gauge a company’s financial health, it can be helpful to reference AM Best’s financial strength ratings. This independent credit agency focuses exclusively on the insurance industry, assessing various companies’ finances and creditworthiness before assigning them a grade ranging from A++ to D. Taking out a policy with a company that holds a high AM Best rating may give policyholders more peace of mind knowing that their insurance provider’s future outlook is good.
When searching for the best rental property insurance companies, property owners may want to consider providers that exclusively offer this type of coverage as well as companies that offer rental property policies in addition to other kinds of insurance.
Why It Made the Cut: Steadily specializes in rental property insurance, providing extensive coverage with its standard insurance policies in addition to a user-friendly and streamlined online quote process.
Property owners looking for an insurance company that understands the intricacies of rental property insurance may find Steadily to be an appealing option, as the provider focuses entirely on rental property coverage. Because this type of insurance is an area of expertise for the company, policyholders can feel confident that agents will be able to offer expert support, answer questions, help address any policy issues, and quickly process claims.
The quote process is an area of strength for the company as well, with a detailed and user-friendly online tool that enables property owners to quickly customize quotes according to their property and business needs. Although policyholders will pay a separate deductible for windstorm damage if they ever need to file a claim, they will receive other structures coverage as part of any rental insurance policy with Steadily. This standard coverage allows policyholders to insure their entire rental property—not just the primary residence—without purchasing extra endorsements. In addition, standard Steadily insurance policies come with replacement cost coverage—rather than actual cash value coverage—so policyholders can recoup the full cost of repairs or replacement on covered property without worrying about depreciation affecting their payout.
Why It Made the Cut: State Farm may be a great choice for property owners due to its strong financial rating, potential bundling discounts, and rental insurance policies designed for all types of rental properties, including condos.
As one of the largest insurance companies in the nation, State Farm maintains a strong financial situation, as reflected by its A++ AM Best rating. Beyond its financial strength, State Farm stands out with rental insurance policies covering all types of rentals. For instance, State Farm’s Rental Condo Unitowners Policy is tailored to the needs of property owners renting out a single unit instead of an entire apartment building or single-family house. Condo owners can use this specialized insurance policy to get the coverage they need without overpaying for policy options that may not apply to their rental property.
Although prospective customers will need to call a representative or speak to a local agent to get a quote—rather than get a quote online through the company website—they will have opportunities to reduce their insurance costs by taking advantage of State Farm’s bundling discounts. Customers can also manage their policy—including filing and tracking claims—at any time with the company’s easy-to-use mobile app.
Why It Made the Cut: Obie’s specialty in rental property insurance, high standard liability limits, and online enrollment options make it a very appealing choice for property owners looking for an insurance provider that understands real estate rentals.
Obie exclusively focuses on rental property insurance, so property owners and landlords can feel confident that they will find the right type of coverage no matter what their rental situation looks like. The company has policies for both long-term and short-term rentals, as well as coverage for properties that sit vacant for large stretches of time with intermittent rental periods.
Prospective customers may note that Obie policies contain separate $5,000 deductibles for windstorm damage. However, standard coverage also includes $1 million of liability coverage, so policyholders can get some peace of mind knowing that any liability claims they file are less likely to be restricted by their coverage limits.
Claims will need to be filed over the phone, but Obie supports other online processes that can streamline and improve the customer experience. For instance, the company’s online quote tool provides a detailed breakdown of the costs, coverage, and add-on options attached to the quoted policy, helping customers make a more informed decision about their insurance. In addition, customers have the option to enroll in a policy online after receiving a quote, so they won’t need to speak directly to an agent to start coverage.
Why It Made the Cut: Foremost offers a wide variety of discounts and deductible options, which could help property owners save money on the cost of their rental property insurance.
Foremost offers a wide variety of potential discounts that may appeal to property owners looking to lower the cost of their rental property insurance. Not all property types will be eligible for rental property coverage in every state—and coverage is unavailable entirely in Hawaii—but those that are eligible may qualify for multi-policy discounts with the company. There are also discounts available for bundling policies to help further reduce the cost of coverage.
It’s worth noting that Foremost’s online quote process cannot be completed without speaking to an agent, but that hands-on support could result in more accurate and customized quotes. Customers may also find that they need to add essential policy options such as loss of rents coverage. However, policyholders can offset the costs of add-on options by taking advantage of discounts for using tenant screening services or becoming a member of a landlord association. Foremost also offers different deductible options to choose from, so policyholders can further adjust their insurance costs as they see fit.
Why It Made the Cut: USAA’s rental property insurance offers extensive coverage options—through both standard policies and add-on endorsements—as well as the ability to manage policies and claims through a dedicated mobile app.
USAA can be a good option for qualifying property owners, as the company’s superior AM Best rating speaks to its long-term financial outlook and ability to continue providing rental property insurance to customers. Eligibility is restricted to service members and their families—this applies to the company’s online quote tool for rental property insurance as well. That being said, USAA’s dedicated mobile app allows eligible property owners and landlords to file claims, review the terms of their policies, request agent support, and manage their policies at any time and from any location.
The company’s rental property insurance also comes with standard vandalism coverage, so property owners will not need to pay extra for an endorsement that covers this type of property damage. Customers can also choose to take out a separate home-sharing policy, which is designed to provide insurance for property owners who rent out a room or apartment in their primary residence and can account for the specific circumstances that this kind of rental arrangement presents. USAA customers may also qualify for a 25 percent discount on tenant screening services with TransUnion’s SmartMove platform, which can help them avoid renting to tenants who may be more likely to cause property damage, miss rent payments, or create legal issues for the property owner.
Our Best Overall award goes to Steadily because of its specialization in rental property insurance, extensive standard coverage, and streamlined online quote tool. State Farm gets the nod for Runner-Up because of its strong financial standing, user-friendly mobile app, and potential bundling discounts.
When selecting the best rental property insurance companies, we weighed many factors relating to the availability, affordability, and usefulness of policies in this space. For instance, companies that offered extensive standard policies tailored to the needs of rental property owners were given strong consideration.
We also took into account features that could impact the overall customer experience, such as quote processes, claim processes, and customer support services. Companies with more intuitive and seamless workflows, such as easy-to-use online quote and claims tools, stood out among the competition. Each company’s financial health was an important consideration as well since financial stability can be a good indicator of dependable service and consistent business operations.
It’s worth noting that property owners are not legally required to obtain landlord or rental property insurance. That being said, forgoing this type of coverage could expose property owners to financial risk if tenants damage their property—especially if the house, apartment, or unit cannot be rented out while being repaired. Without the dwelling coverage included in standard rental property insurance policies, property owners could have no financial protection in the event that property damage is severe enough to constitute a total loss.
Property owners could also pay for liability damages entirely out of pocket if they lack insurance for rental properties. Another point to consider is that landlord and rental property insurance does not cover the tenant’s possessions. Tenants will need to get a separate renters insurance policy to protect their belongings in case of loss or damage.
Homeowners who wish to rent out their property for short-term stays—listing a second home on a rental hosting site like Airbnb, for instance—will likely need a different type of rental insurance for this type of business activity. Short-term rental insurance policies may be better suited to the needs of property owners who have multiple tenants throughout the year.
Rental property insurance may cost more than standard homeowners insurance policies because of the higher risk of property damage and liability claims. It’s not uncommon for rental property policies to carry higher limits on liability coverage, which typically increases the cost of insurance.
In general, insurance premiums will depend on the policy options a property owner selects, including coverage limits and add-on endorsements. Landlord insurance costs may also be influenced by the location and condition of the property. It’s also worth noting that deductibles can impact premiums as well since choosing a lower deductible will usually result in a higher insurance rate. Policyholders may be able to reduce their rental property insurance costs by taking advantage of discounts for bundling policies, insuring multiple properties, or enrolling in tenant screening programs, among other types of discounts.
When shopping for rental property insurance, property owners may benefit from picking a provider that specializes in this form of insurance and creates policies geared toward the unique conditions related to this business activity. The best rental property insurance companies have wide coverage areas for property owners across the country, strong financial ratings to provide peace of mind, and a wide selection of policy options to customize coverage as needed. Providers that excel in this space can provide a number of benefits to both experienced landlords and first-time rental property owners, including:
Rental property insurance can appeal to different types of property owners, including both experienced landlords and homeowners looking to generate some extra income by renting out a second property. As such, policyholders’ needs can vary significantly, and some property owners may not even be sure where to begin looking for the best rental property insurance. Answering some of the most common questions about this type of insurance can help them narrow down their search and find the right policy for their needs.
Because renting out property—whether it’s an entire apartment building or a single room in a primary residence—is considered a business activity, property owners will likely need dedicated rental property insurance or landlord insurance to protect the property in the event of covered perils and protect the property owner in the event of a liability claim. Property owners may note that this insurance does not cover a tenant’s personal property; tenants will need separate apartment renters insurance to insure their belongings.
Getting landlord or rental property insurance can often be worth the expense because it can help property owners recoup financial losses if a tenant causes damage to their property. For instance, the best landlord insurance companies may offer loss of use coverage in the event that the property cannot be rented out for an extended period while being repaired, which could allow property owners to recoup lost rental income.
Homeowners insurance covers a property owner’s primary residence and cannot be used to insure property used for business activities. Landlord insurance covers property that is rented out to tenants and may include specialized coverage like loss of rents as standard coverage. Home rentals by owner will likely require rental property or landlord insurance to protect against property damage caused by tenants.
In many cases, property owners can deduct rental property insurance premiums from their taxes because the IRS considers them to be a business expense. As with any tax-related issue, however, it’s often best to speak to a tax professional to get more clarity regarding the taxpayer’s specific circumstances.
Rental profits are taxed the same as ordinary income, so property owners will pay taxes on their rental income each year. When managing a house rental, owners should account for all payments that may be considered taxable income, including rent payments, security deposits, and services provided by tenants in lieu of rent.
According to the Insurance Information Institute, insurance companies may provide temporary coverage for short-term rentals, but homeowners will need to notify their provider first. Homeowners insurance companies may also offer add-on endorsements for short-term rental insurance, but availability will vary. Long-term private owner rentals will likely require separate rental property insurance.
Although hosts are not required to obtain rental property insurance, it may be worth getting coverage through one of the best short-term rental insurance companies. This coverage can help protect hosts financially in case a guest causes damage to the property or is injured during their stay and holds the host liable for their medical bills and expenses.
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