Posted by By Paul Branton, Director of Investor Services for Home Rental Services
Owning a rental property is one of the greatest ways to build long-term wealth, but it also comes with some risks and expenses that could really set you back if you’re not properly insured.
Insurance. Ugh. It’s definitely not my favorite subject to discuss or product to buy, but it is certainly necessary in the world we live in. With that being said, lets go ahead and dive into the why of its necessity…. From unexpected plumbing disasters, storm damages, to liability claims that come out of nowhere. The right insurance coverage is what protects your investment, your cash flow, and your peace of mind.
Here’s a breakdown of some of the most important insurance coverages every rental property investor should have in place:
1. Landlord / Dwelling Policy (DP-3): Your Core Coverage
A standard homeowner’s policy won’t cover a rental. You need a landlord or dwelling policy, and the DP-3 is the gold standard. A DP-3 landlord policy typically covers: Fire, smoke, water damage, storm damage, vandalism, loss of rental income if the home becomes uninhabitable and liability protections if someone gets injured on the property.
2. Landlord Liability Insurance
Liability claims can get expensive really quickly. Even something as simple as a tenant or guest slipping on a loose step can turn into a five-figure problem.
Liability coverage helps protect you from:
- Medical bills
- Legal fees
- Settlements or judgments
Most investors carry $300,000–$1,000,000 in liability coverage. If you own multiple properties or higher-value assets, consider the $1M coverage. It’s usually inexpensive relative to the additional protection it provides.
Our property management agreement has a requirement of at least $500,000 in liability coverage.
3. Premises Liability Umbrella Policy
Think of this as a giant “extra layer” of liability protection sitting on top of your landlord policy.
Why you may want it:
- Lawsuits can exceed the limits of your regular policy
- It’s inexpensive (often $150–$350/year per $1M of coverage)
- Great for those with multiple properties or substantial assets
Many seasoned investors and homeowners consider this to be a non-negotiable.
4. Loss of Rent / Loss of Use Coverage
If a fire, burst pipe, or other covered event makes your home temporarily unlivable, this coverage reimburses you for lost rental income while repairs are made.
For cash-flow-focused investors, this is huge. Bills don’t stop just because the property is offline.
5. Sewer/Drain Backup & Sump Overflow Coverage
This one is often overlooked… until the day it becomes the most important coverage you’ve ever purchased.
It protects against:
- Sewage backing up into the house
- Sump pump failures
- Water damage from clogged drains
It usually costs a few dollars per month and can save thousands.
6. Equipment Breakdown Coverage
Not every insurance company offers this one, but it’s a good add-on if its an option.
Covers breakdowns of:
- HVAC systems
- Major electrical components
- Appliances, depending on the policy
It’s not a maintenance policy but if a major system fails due to a mechanical or electrical issue, this can keep you from absorbing the full cost.
7. Require Tenants to Carry Renter’s Insurance
This isn’t your insurance, but it protects you indirectly. Smart Investors and Management Companies (like HRS) make this a requirement.
Renter’s insurance:
- Protects the tenant’s personal belongings
- Adds liability coverage for tenant-caused damage (like running into the garage door)
- Helps avoid conflict in insurance claims
- Costs tenants around $15–$20/month
Your investment property represents time, effort and expense, and you deserve the peace of mind that comes with knowing it’s properly protected. A well structured policy ensures that when something goes wrong (and it eventually will) you have some financial backing in place.
Reviewing the coverage you have is important. Insurance isn’t a “set it and forget it” type of thing, its a strategy. As such, it should be reviewed periodically (at least annually) to account for changes to the property value, recent improvements to the property, rising costs for materials/labor and to double check the price you’re paying for coverage is competitive in the marketplace.
Be wise. Strategize. And as always, Happy Investing!
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