Homeowners insurance vs. landlord insurance for a rental property

Both homeowners and landlord insurance typically help cover the building itself (and other structures on the property, such as sheds or fences) if there's damage from a fire, lighting, wind, hail or another covered loss.

The key difference is that landlord insurance is designed for rental properties, while homeowners insurance is designed to cover the property you live in. In general, if you plan to rent out your entire home to tenants, you'll need landlord insurance.

However, sometimes homeowners insurance may offer coverage if you're renting out a room to tenants while living in your single-family home, depending on the number of people renting or the length of their stay in your home. It may also extend some coverage for a single time you rent out your home. However, often, insurers require an endorsement for short-term rentals. Coverage varies by insurer or policy, so check with your insurance provider before you rent out a room in your place.

Other key differences between homeowners and landlord policies include:

Personal property coverage

While homeowners insurance may help cover many kinds of belongings, such as furniture, clothing and computers, landlord insurance covers property that is rented or held on the premises to service the rental. Think of a furnished rental – this could include couches and other furniture that are included with the rental of the property. Additionally, a landlord may leave a lawnmower, snowblower, and other equipment for use at the property. The landlord’s personal property coverage would help cover these belongings.

Liability coverage

The liability portion of a homeowners policy covers against bodily injury and property damage that you or your relatives who live with you are responsible for. This usually means coverage for accidents that happen in or around your home. For example, if a guest trips on a broken step that you haven’t fixed or your child accidentally sends a baseball through the neighbor’s window, your homeowners policy can help cover the costs. It may also apply to incidents that happen away from home, such as accidentally damaging the lobby of a hotel during your stay.

For landlords, liability coverage works a little differently. Landlord insurance generally only applies to the rental property. If a tenant or their guest is injured on your rental property and you’re found at fault for not maintaining a safe environment (such as not clearing icy walkways, repairing broken steps, or fixing plumbing issues) your landlord policy may help pay for the resulting medical bills or legal expenses.

Loss of use coverage

Loss of use coverage helps when your property becomes temporarily uninhabitable due to a covered loss. It works differently for homeowners and landlord insurance, and you might hear it called different names.

For homeowners, it’s commonly referred to as additional living expense coverage. This coverage helps cover costs incurred when you are unable to live in your home due to a covered loss, such as fire or storm damage. Eligible living expenses may include hotel or temporary rental fees and restaurant bills.

For landlords, it’s often referred to as fair rental income coverage. This coverage helps compensate you for lost rent payments if your rental property becomes uninhabitable for a period due to a covered loss. For instance, if your tenant must temporarily relocate while you make repairs, this coverage may help pay the rent you would otherwise lose.

Generally, homeowners insurance is cheaper than landlord insurance. The higher cost is primarily due to rental properties commonly having more claims related to tenant damage, liability, and loss of rental income. However, depending on factors such as location and property values, some landlords may find that landlord insurance for their rental property is actually less expensive than homeowners insurance for their own home. This chart offers a general guideline of cost differences, but rates vary by state, provider and property.

If you're planning on temporarily renting out your home for a single occasion (to coincide with a big sporting event in your town, for instance), then it's possible that your existing homeowners policy may provide some protection, says the Insurance Information Institute (III). A homeowners insurance policy may help cover damage caused by certain risks, such as a fire or break-in, if you rent out your home occasionally. However, you may find that you cannot purchase homeowners insurance if you do not live in the home.

If you're planning on renting out your single-family home (or a second home/investment property) on an ongoing basis, then you're likely a candidate for landlord insurance, says the III, because a homeowners policy typically won't protect you in this scenario.

Landlord insurance and homeowners insurance do not cover your tenants' personal belongings. That's why you may want to make renters insurance a condition of your lease. Renters insurance may help protect your tenants' possessions, and also provide them with some liability protection.

It's a good idea to give some thought to the risk of inviting paying guests into your home – and read your policy to make sure you have the appropriate coverages in place – before you welcome renters for any length of time.