So you've decided to become a landlord. Maybe you bought a second property as an investment, or perhaps you're moving out of your current home and renting it instead of selling. Either way, you're about to discover something that surprises most first-time landlords: your regular homeowners insurance won't cut it anymore.
That's where landlord insurance—specifically a DP-3 policy—comes in. Think of it as homeowners insurance's more robust cousin, designed specifically for the unique risks of renting out property. The difference isn't just technical insurance jargon; it can mean thousands of dollars in protection when something goes wrong.
What Is Landlord Insurance (DP-3)?
A DP-3 policy is the gold standard of landlord insurance. The "DP" stands for dwelling fire, and the "3" means it's the most comprehensive version available. Here's what makes it special: it's an open peril policy. That means it covers damage from pretty much anything unless it's specifically excluded in your policy. Fire, windstorm, hail, vandalism, lightning strikes—if it's not on the exclusions list, you're covered.
This is different from DP-1 or DP-2 policies, which only cover named perils—meaning you're only protected against specific events listed in your policy. With a DP-3, the burden is reversed in your favor. The landlord insurance market was valued at $20.7 billion in 2023 and is projected to reach $40.9 billion by 2032, reflecting how many property owners are recognizing the need for this specialized coverage.
How Landlord Insurance Differs From Homeowners Insurance
The most important thing to understand is this: once you start renting out a property, your homeowners insurance becomes effectively worthless for that property. Insurance companies know that rental properties come with different risks—tenants you don't know living in your property, wear and tear from multiple occupants over the years, and liability issues that don't apply to owner-occupied homes.
Here's where the coverage diverges: homeowners insurance protects your personal belongings inside the home. Landlord insurance doesn't, because your stuff isn't there—your tenant's is. Instead, landlord insurance focuses on the structure itself and the financial risks of being a landlord. Your tenant needs their own renters insurance for their belongings.
The real game-changer is loss of rent coverage. If a fire damages your rental and makes it uninhabitable, homeowners insurance would give you loss of use coverage—money for hotel stays and meals while your home is repaired. But you're not living there. Landlord insurance replaces your lost rental income instead, typically for up to 12 months or until repairs are complete. This is usually calculated as 20% to 25% of your dwelling coverage limit.
What Your DP-3 Policy Covers (and What It Doesn't)
Your DP-3 landlord policy typically includes three main components. First is dwelling coverage, which protects the physical structure of your rental property. If a tree falls on the roof during a storm or a kitchen fire damages the walls, this is what pays for repairs. Most DP-3 policies pay replacement cost, meaning you get enough to rebuild without depreciation being factored in.
Second is liability coverage. This is absolutely critical and often underestimated. If a tenant or their guest slips on ice outside your rental and breaks their leg, they could sue you for medical bills, lost wages, and pain and suffering. Your liability coverage handles these claims, including legal defense costs. In 2025, typical landlord claims range from $10,000 to $27,000, so adequate liability limits are essential.
Third is loss of rent coverage, which we've already discussed. This coverage costs an additional $100 to $300 annually on average, but it's worth every penny. Imagine a scenario: your $2,000-per-month rental suffers water damage that takes four months to repair. Loss of rent coverage could reimburse you for that $8,000 in lost income.
Now, here's what DP-3 policies typically don't cover: floods and earthquakes. These are specifically excluded from most policies, but you can add them through separate endorsements or policies. Also important to note—if your tenant simply stops paying rent but is still living in the property, loss of rent coverage won't help. That requires a separate rent guarantee insurance policy.
What Landlord Insurance Costs in 2025
Let's talk numbers. The average landlord insurance policy costs about $1,895 per year, though you could pay anywhere from $700 to over $8,300 depending on your situation. Generally speaking, expect to pay 25% more than you would for a comparable homeowners policy on the same property. Annual premiums typically range from $2,100 to $4,000 for most landlords.
What drives your premium up or down? Location is huge. States experiencing climate-related events—Florida, Louisiana, Texas, California, and Arkansas—are seeing some of the sharpest rate increases. Homeowners insurance rates overall have climbed 21% in 2025, adding an average of $244 per year to policies, and landlord insurance is following that trend. In fact, insurance rates have increased about 20% nationwide in just the last year.
Other factors include the age and condition of your property, the type of construction, your coverage limits, and your deductible choice. If you own multifamily properties, the costs can be even higher—the average monthly cost per unit increased from $39 in 2019 to $68 in 2024, a jump of more than 75%.
Common Liability Gaps Landlords Miss
Here's where landlords often get into trouble: assuming their DP-3 policy covers everything. It doesn't. One major gap is tenant-caused damage that isn't covered by a peril. If your tenant punches a hole in the wall during a dispute, that's vandalism—but it might not be covered if the vandal is the tenant themselves, depending on your policy language.
Another gap is maintenance-related liability. If you neglect to fix a broken stair railing and a tenant falls and gets injured, your liability coverage may apply—but you could also face allegations of negligence that complicate the claim. Regular property maintenance isn't just good landlording; it's essential risk management.
Short-term rentals present another liability challenge. If you're renting your property on Airbnb or VRBO, a standard DP-3 policy might not cover you adequately. You may need a commercial policy or specific short-term rental endorsement. Always disclose how you're using the property to your insurance agent.
How to Get Started With Landlord Insurance
The first step is simple: as soon as you know you're going to rent out a property, contact your insurance agent or start shopping for quotes. Don't wait until you have a tenant moving in. In fact, most mortgage lenders require proof of landlord insurance before you can close on an investment property.
When you're getting quotes, ask specifically about DP-3 coverage. Make sure you understand what perils are excluded, what your liability limits are, and whether loss of rent coverage is included or available as an add-on. Also ask about discounts—you might save money by bundling multiple rental properties, installing security systems, or choosing a higher deductible.
Finally, require your tenants to carry renters insurance and name you as an additional interested party on their policy. This protects their belongings and provides them with liability coverage, which reduces your risk. It's a simple lease requirement that can save you major headaches down the road.
Being a landlord comes with financial rewards, but also real risks. A DP-3 landlord insurance policy is your safety net—the thing that protects your investment when the unexpected happens. Whether it's a kitchen fire, a liability lawsuit, or months of lost rent while repairs are made, the right coverage means the difference between a manageable setback and a financial disaster. Get quotes, ask questions, and make sure you're covered before your first tenant moves in.
