What Landlords Need to Know Before Renting Out Their Arizona Property
Reading time: 4 minutes
The most common insurance mistake I see with new landlords isn't a bad decision. It's not making one at all.
Someone moves out of their home, decides to rent it out instead of selling, and keeps the same homeowners insurance policy they've always had. Nobody told them anything was wrong, because nothing looks wrong until there's a claim.
Here's what actually changes once a tenant moves in, and what to have in place before that happens.
Your homeowners policy isn't built for this
According to the Insurance Information Institute (III), a standard homeowners policy typically excludes or limits coverage once a property is being rented out. It was priced and written for an owner living in the home, not a tenant.
This catches two kinds of people in the East Valley constantly. The first is what I'd call the accidental landlord: someone who used to live in the home and started renting it out, often without updating a single thing on their insurance. The second is the first-time investor who bought a property specifically to rent, and assumed a homeowners policy was a homeowners policy.
Either way, the fix is the same. Once you have a tenant, you need a landlord policy (also called a rental dwelling policy), not a homeowners policy.
What a landlord policy actually covers
A landlord policy covers the structure itself: the building, and typically other structures on the property like a detached garage or fence. Most landlord policies also include loss of rental income coverage, which helps replace the rent you'd normally collect if the property becomes temporarily uninhabitable due to a covered loss, usually for a defined period while repairs are made.
What it does not cover is your tenant's belongings. Their furniture, electronics, and personal property are their responsibility to insure, not yours. This is exactly why many landlords require proof of renters insurance before handing over keys. According to the III, requiring renters insurance is a common way landlords avoid disputes over damaged tenant belongings, since it's clear from day one whose policy is responsible for what.
One thing worth budgeting for: the III notes that landlord policies generally cost about 25 percent more than a standard homeowners policy on the same property, reflecting the increased liability and risk that comes with having tenants.
The short-term rental trap
If you're renting the property to one tenant for six months or a year at a time, a landlord policy is the right fit. But if you're renting it out short-term and regularly, nightly or weekly through a platform like Airbnb or VRBO, that's treated differently.
According to the III, regularly renting out a property short-term to a rotating set of guests is considered a business activity. Standard landlord and homeowners policies don't cover business activity, which means you'd need a specific short-term rental policy or a hotel and bed-and-breakfast style commercial policy instead. If short-term rental is part of your plan for the property, say so upfront when you're shopping coverage. Don't assume a standard landlord policy has you covered just because it has "rental" in the name.
The gap that catches investors between tenants
If your property sits vacant for an extended stretch between tenants, standard landlord policies may reduce or exclude certain coverage after 30 to 60 days of vacancy, depending on the carrier. If you're renovating between tenants, doing a longer turnover, or holding a property while you find the right renter, ask specifically how your policy handles vacancy. This is an easy thing to overlook and an easy thing to fix once you know to ask.
If you own more than one rental
As your rental portfolio grows, so does your liability exposure. A single serious injury claim on any one property could exceed the liability limits built into a standard landlord policy. This is where a commercial or personal umbrella policy is worth a real conversation, since it adds a layer of liability protection across your properties rather than leaving each one to fend for itself at a lower limit.
Before you hand over the keys
A short list worth working through before your first tenant moves in:
Confirm you actually have a landlord policy in place, not a leftover homeowners policy from when you lived there.
Check your loss of rental income coverage and how many months it actually provides.
Decide upfront whether the property will be a long-term rental or a short-term rental, and make sure your policy actually matches that plan.
Ask how your carrier handles vacancy between tenants.
Require proof of renters insurance in your lease, and keep a copy on file.
The bottom line
Renting out a property is a good financial move for a lot of East Valley homeowners and investors. Getting the insurance side right is what keeps it that way. The most expensive mistake isn't picking the wrong landlord policy. It's not realizing you need one until something's already happened.
If you're about to rent out a property, whether it's your old home or a new investment, bring me the details and I'll make sure you're covered correctly from day one, not after the first claim teaches you the hard way.
Steven White
Founder, Switchback Insurance
The local guide that knows the trail
480-916-7291
Steven@SwitchbackAZ.com
Gilbert, AZ 85296
Sources
Insurance Information Institute (III). "Coverage for renting out your home." https://www.iii.org/article/coverage-for-renting-out-your-home
Insurance Information Institute (III). "Your renters insurance guide." https://www.iii.org/article/your-renters-insurance-guide