What a landlord policy covers, why a homeowners policy won't, and the two coverages every landlord needs.
Whether you inherited a house, kept the first place when you moved up, or bought a duplex on purpose, the insurance question is the same: the property is now a business, and it needs a business-style policy. Get it right and the rent covers the premium many times over. Get it wrong and a kitchen fire becomes a mortgage payment with no rent coming in.
DP-1, DP-2, DP-3, what the forms mean
Landlord policies come in three levels. DP-1 is named-peril, actual-cash-value coverage, cheap and thin, common on vacant or low-value property. DP-2 adds more perils and usually replacement cost. DP-3 is open-peril (covers everything not excluded) at replacement cost, the equivalent of a homeowners HO-3, and what we recommend for nearly every occupied rental.
Coverage #1 you need: loss of rents
If a covered loss makes the unit unlivable, loss of rents (fair rental value) pays the rent you'd have collected during repairs, typically for up to 12 months. Without it, you're paying the mortgage, taxes and insurance on a property producing nothing. It's inexpensive and it's the coverage most new landlords skip.
Heads up: tell your carrier before the tenant moves in
Keeping a homeowners policy on a house you've rented out is one of the most common, and most dangerous, mistakes we see. Many policies exclude losses once the property is tenant-occupied, and some carriers will non-renew when they find out. Call us before the lease is signed; the switch is quick and usually not expensive.
Coverage #2 you need: landlord liability
A tenant's guest falls on an icy walk you were responsible for clearing. A porch rail gives way. A furnace problem leads to a carbon monoxide claim. Landlord liability pays the claim and the defense. Start at $300,000–$500,000, then add a personal umbrella that stretches across every property, your home and your cars for a small annual premium. Illinois landlords also have specific duties around security deposits, habitability and disclosures, none of which insurance replaces, but liability coverage is what stands behind you when a dispute turns into a suit.
What the tenant covers, and why you should require it
Your policy does not cover the tenant's belongings or the tenant's liability. A renters policy does, and it also covers damage the tenant causes to your building, which is why a growing number of landlords require one in the lease with the landlord listed as an interested party. We write those too; see our renters insurance page.