Protecting Your Rental Property From Disaster

One of the most important purchases you can make for your rental property is insurance. The process can feel a bit overwhelming and many property owners don’t find out what their policy actually covers until they need it. You never want to be in a situation in which you find out that something important isn’t covered, so it’s important to ask your insurance agent plenty of questions about what your insurance actually provides. So, let’s take a look at what you’ll need to cover yourself.

Rental Property Insurance

Even if your primary residence is also your rental property, your homeowners’ insurance won’t be enough to cover the extra risks associated with having tenants at your property. Whether you live on site or not, you will definitely need rental property insurance. One key distinction between homeowners’ and rental property insurance is that homeowner’s insurance won’t cover loss of rental income. In the event that damages make your rental uninhabitable, rental property insurance will cover the loss of rental income.

There are three types of rental property policies: DP-1, DP-2, and DP-3. (DP stands for “dwelling policy.”) DP-1 offers the most minimal protection and will only cover specific types of “perils” – events that cause damage – cited in your policy. A DP-1 policy also offers the lowest reimbursement value for damaged items. If you need to replace a damaged washer, for example, a DP-1 policy will only reimburse for the worth of the item at the time it was damaged, with depreciation factored in. A DP-2 policy, on the other hand, will typically pay you for a brand-new item. DP-2 policies also will only cover specific types of events specified in the policy, but they usually cover more types of perils, such as burglary. A DP-3 policy is the most expensive and it covers the most types of perils. As with a DP-2 policy, damaged items are reimbursed at their cost of replacement.

So those are the types of rental property policies. While they vary in the extent of their coverage, here’s what they each will offer.

  • Dwelling coverage

This coverage is applied to the physical dwelling itself, including damages to the walls, roof, or any other part of the dwelling, as long as the damages are the result of a covered event. For example, if your dwelling is damaged by an earthquake, but you didn’t buy earthquake insurance, those damages wouldn’t be covered. The cause of the damages will be important to your insurance provider.

  • Liability coverage

Liability coverage will protect you in the event that someone is injured on your property. You will be insulated from the legal and medical costs that you could potentially incur.

  • Loss of rent coverage

If your property becomes uninhabitable due to damages, this will cover your lost income. Policies will typically only cover lost rent for a specific amount of time, such as six months.

What Your Policy Won’t Cover

Rental Property Insurance doesn’t cover damages from flooding, earthquakes, or mechanical breakdown. Depending on where you are in the country, buying separate insurance for flooding and earthquakes can be especially important. Currently, forty-one million Americans live in a flood zone, and with major weather events becoming more frequent, this can be an important type of coverage.

Short-Term Rental Insurance

If you’ve decided to go the short term/vacation rental route, you would need to obtain commercial property insurance instead of rental property insurance. Commercial property insurance offers specific coverage for the types of events that can happen specifically to short-term rental owners. This can include coverage for things such as identity theft or vandalism. The major short-term rental sites such as Airbnb and VRBO offer some coverage to their hosts, but it is usually more limited than an insurance policy.


When you’re talking with your insurance broker, be sure to ask plenty of questions and inquire about hypothetical situations. Also, talk to other rental property owners and ask them about their experiences with their insurance coverage, especially if they’ve needed to file a claim. When it’s time to renew your coverage, take the time to review your policy. Your rental property is a major asset and it’s worth it to look into the best way to protect yourself and your property.


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