The right insurance is what keeps one bad day at your rental from becoming a bad year. A fire, a burst pipe or a slip-and-fall claim can cost far more than a year of premiums, and the wrong policy may not pay at all.
As your property manager, we see how claims play out in real life. Below are six steps we encourage every owner to review with their insurance agent, ideally once a year.
Disclaimer: We are a property management company, not licensed insurance agents. This article is general education, not insurance, legal or financial advice for your specific property. Coverage, exclusions and pricing vary by carrier, policy and location. Please talk with a licensed insurance professional before making any coverage decisions.
1. Switch to a Landlord Policy the Moment the Property Becomes a Rental
A homeowner's policy is written for a home you live in. Once a tenant moves in, it may no longer fit how the property is used, and a carrier could deny a claim on that basis.
A landlord or dwelling fire policy (often called a DP-3 for broad coverage) is built for rentals. It typically covers:
- The building itself and attached structures
- Liability for injuries or damage tied to the property you own
- Your own items left on site, such as appliances or common-area furniture
- Lost rental income, if you add it (see step 3)
Make the switch before the first tenant's move-in date, not after. This applies to a former primary residence, an inherited home, or a property you are renting "just for a year."
2. Make Sure Your Liability Limits Fit Today, Not the Year You Bought
Many owners set their liability limit when they first bought and never looked again. Since then, property values, medical costs and legal settlements have all climbed.
Liability coverage pays if someone is hurt on your property and holds you responsible: a tenant who trips on a broken step, or a guest injured by a loose railing. A limit that felt generous ten years ago may not cover a serious claim today.
Ask your agent:
- What is my current liability limit, and when was it last changed?
- Is that enough given my property's value and my overall assets?
- How much would it cost to raise it?
3. Add Loss of Rent Coverage So One Event Doesn't Cost You Twice
When a covered event like a fire or major water leak makes a unit unlivable, you pay twice: once for repairs, and again in lost rent while the work is done. Your mortgage, property taxes and HOA dues keep coming either way.
Loss of rent coverage (sometimes called fair rental value) replaces that income during repairs from a covered loss. Repairs can take months once you factor in permits, contractor schedules and material delays.
Ask your agent how many months of rent the policy will pay, and whether there is a dollar cap.
4. Consider an Umbrella Policy as Your Portfolio Grows
An umbrella policy adds liability protection on top of your individual property policies. If a claim exceeds your landlord policy's limit, the umbrella can pick up where it leaves off.
It becomes more valuable as you add doors. More properties means more tenants, more visitors and more chances for a claim, and more assets that a large judgment could reach.
Umbrella coverage is often sold in million-dollar increments and can be relatively affordable for the protection it adds. Carriers usually require certain minimum limits on your underlying policies, so review them together with your agent.
5. Require Renters Insurance in the Lease
Your landlord policy covers your building, not your tenant's belongings. If a fire destroys a tenant's furniture, clothing and electronics, your policy generally won't replace them, and that surprises many tenants.
Requiring renters insurance in the lease helps everyone:
- Tenants get their belongings covered and often temporary housing costs too.
- Owners benefit because a renters policy's liability coverage may respond first to damage the tenant causes, like a kitchen fire or an overflowing tub.
- Relationships stay calmer after a loss, because the tenant has somewhere to turn besides you.
That's why Babcock requires renters insurance in our leases. We also recommend confirming proof of coverage at move-in and at each renewal, with a minimum liability amount stated in the lease.
6. Ask Your Agent About Risks Specific to Your Location
Standard landlord policies typically exclude earthquake and flood. Those usually need separate policies or endorsements, and many owners don't learn that until after a loss.
Topics worth raising with your agent:
- Earthquake: Usually a separate policy with its own deductible, often a percentage of the dwelling's coverage rather than a flat dollar amount.
- Flood: Available through the National Flood Insurance Program or private carriers. Flood can happen outside mapped flood zones, and new policies often have a waiting period before coverage starts.
- Wildfire: In high-risk areas, finding and keeping coverage has become harder. Ask about your carrier's renewal outlook and your backup options.
- Other local hazards: Sewer backup, older plumbing or roofs, and nearby slopes can all affect what is covered.
Local risk changes over time, so revisit these questions at every renewal.
Your Annual Insurance Checklist
- ☐ My rental is on a landlord or dwelling policy, not a homeowner's policy
- ☐ My liability limits have been reviewed in the last year
- ☐ Loss of rent coverage is included, and I know how long it pays
- ☐ I've discussed an umbrella policy with my agent
- ☐ My lease requires renters insurance, with proof on file
- ☐ I know whether earthquake, flood or other local risks are covered
Insurance is one of the least exciting parts of owning a rental, until the day you need it. If you'd like a copy of our lease's renters insurance requirement, or have questions about how a claim would work with your property, reach out to our team. We've also worked with a local insurance broker for decades and are happy to provide their information upon request. For coverage decisions, always check with a licensed insurance professional.