By Nick Bartlett, Realtor and owner of Freedom Rental Property Management in Maple Grove, Minnesota.
I’m a property manager and Realtor, not a licensed insurance agent. Use this guide to prepare for the conversation with your agent, and confirm the details of any policy in writing before you rely on it.
Short answer: Rental property insurance for a Minnesota owner comes down to three things: a landlord policy on the house (a DP-3 dwelling policy at replacement cost), liability coverage of at least $300,000 plus an umbrella, and a lease that requires every tenant to carry renters insurance. Your homeowners policy stops fitting the day a tenant moves in. A landlord policy drops coverage for your belongings but adds lost-rent coverage and rental liability, and in Minnesota it averages about half the premium of a homeowners policy at the same coverage amount, based on NAIC data.
Key takeaways
- Rental property insurance starts with a landlord (dwelling) policy, because a standard homeowners policy is written for an owner-occupied home and does not cover a home rented to tenants.
- Converting your home to a rental removes personal property coverage, which the Minnesota Department of Commerce says is limited to 50% of the dwelling coverage on many homeowners policies, and NAIC data shows Minnesota dwelling policies averaging about half the premium of HO-3 homeowners policies at the same coverage amount.
- A DP-3 landlord policy covers the house on an open-perils, replacement-cost basis and includes fair rental value coverage for rent lost after a covered loss.
- Freedom Rental Property Management requires owners to carry a DP-3 policy at full replacement cost with at least $300,000 in liability and Freedom named as an additional insured.
- Tenants need their own renters insurance for their belongings and liability, and it averages about $218 a year in Minnesota.
- Every Freedom lease requires renters insurance with $100,000 in liability, $25,000 in pet bite liability and $1,000 in mold coverage.
What rental property insurance does a Minnesota owner need?
A Minnesota rental owner needs a landlord policy on the building, liability coverage sized to the risk of having tenants and guests on the property, and renters insurance carried by the tenant. Each piece of rental property insurance pays for a different kind of loss, and a gap in any one of them lands on the owner.
| Coverage | Who buys it | What it pays for |
|---|---|---|
| Landlord dwelling policy (DP-3) | Owner | Damage to the house, garage and attached structures, plus appliances you leave for the tenant |
| Fair rental value | Owner (part of the landlord policy) | Rent you lose while the home is repaired after a covered loss |
| Landlord liability | Owner | Injury claims and lawsuits from tenants, guests and contractors |
| Umbrella policy | Owner | Liability claims beyond your landlord and auto policy limits |
| Water backup and flood | Owner (endorsement or separate policy) | Sewer or sump pump backup and flooding, which standard policies exclude |
| Renters insurance | Tenant | The tenant’s belongings, the tenant’s liability and the tenant’s hotel costs after a covered loss |
Why one rental policy isn’t enough
Think of rental property insurance as layers. The landlord policy protects the asset, meaning the house itself and the rent it produces. Landlord liability and an umbrella policy protect you, the owner, from a lawsuit that could reach past the house to your savings.
Water backup and flood coverage fill the gaps that a standard landlord policy excludes. The tenant’s renters insurance protects the tenant’s things and pays for damage the tenant causes, which can keep tenant-caused claims off your own policy and your claims history.
Does homeowners insurance cover a rental property?
No. A homeowners policy is written for a home you live in, and Progressive explains that standard homeowners policies don’t cover homes rented to tenants. If you move out, sign a lease and leave the homeowners policy in place, a fire, a burst pipe or a tenant injury claim can be denied because the home was no longer your residence.
Call your insurance agent before the lease start date, not after the tenant moves in. Ask for a landlord policy effective on the day the lease begins, and cancel the homeowners policy on that same day so there is no gap in coverage. If you have a mortgage, your lender requires proof of insurance on the home, so send the lender the new declarations page when the policy changes.
Landlord insurance vs homeowners insurance: what changes?
Landlord insurance keeps the coverage on the house, removes coverage for the owner’s belongings and living expenses, and adds coverage for lost rent and rental liability. This comparison shows each part of the policy side by side.
| Coverage | Homeowners policy (HO-3) | Landlord policy (DP-3) |
|---|---|---|
| Dwelling | Covered | Covered |
| Your belongings | Covered, limited to 50% of the dwelling coverage on many policies | Only items left for the tenant or to maintain the home, such as appliances and a snow blower |
| Tenant belongings | Not applicable | Not covered; the tenant’s renters insurance covers them |
| Loss of use | Pays your hotel and meals if you are displaced | Replaced by fair rental value, which pays lost rent |
| Liability | Covers you and your household | Covers rental-related claims from tenants, guests and contractors |
| Who lives there | You | Your tenant |
What fair rental value coverage is
Fair rental value coverage is the part of a landlord policy that replaces rent you lose while a home is repaired or rebuilt after a covered loss. The Insurance Information Institute notes that most landlord policies include lost rental income for a set period.
Here’s an example. If a kitchen fire forces your tenant out for three months on a $2,400-a-month lease, that’s $7,200 of rent the policy can replace while the contractor works.
Fair rental value coverage does not pay when a tenant stops paying rent. That is a screening and eviction problem, not an insurance claim.
Is landlord insurance cheaper than homeowners insurance in Minnesota?
Yes, on average. In the National Association of Insurance Commissioners’ homeowners insurance report, Minnesota dwelling policies, the policy forms landlords buy, averaged $570 a year against $1,988 for an HO-3 homeowners policy. That gap is partly a mix effect, since more dwelling policies insure lower-value homes, so the fair comparison is at the same coverage amount. Even there, Minnesota dwelling policies average about half the premium of HO-3 policies.
| Minnesota coverage amount | Dwelling policy average | HO-3 homeowners average |
|---|---|---|
| $200,000 to $224,999 | $598 | $1,298 |
| $250,000 to $274,999 | $754 | $1,505 |
| $300,000 to $324,999 | $850 | $1,669 |
| $400,000 to $449,999 | $1,132 | $2,003 |
| $500,000 to $599,999 | $1,261 | $2,325 |
That matches what owners tell us when they convert the home they lived in: the premium drops. You’ll see the claim online that landlord insurance costs about 25% more than homeowners insurance. That figure is a national rule of thumb repeated from article to article, and the NAIC’s Minnesota premium data does not support it.
Why a Minnesota landlord policy costs less
A homeowners policy insures far more than the house. It carries personal property coverage, which the Minnesota Department of Commerce says is limited to 50% of the dwelling coverage on many policies, with plenty of homeowners raising it to 70% or 75%. It also carries loss of use coverage for your hotel and meals, plus personal liability for your household.
When the home becomes a rental, your belongings move out with you and those coverages come off. The dwelling policy prices the building, and the premium follows.
Two cautions before you count the savings. First, the NAIC dwelling averages include bare-bones DP-1 policies and policies with little or no liability, so a full DP-3 with landlord liability, fair rental value and water backup will quote higher than those averages. Second, the umbrella policy you add for the rental is a separate cost. Ask your agent to quote the complete package, then compare it to your old homeowners premium.
To keep the premium reasonable without cutting coverage you need, raise the deductible to an amount you’d pay out of pocket without stress, and ask your agent to quote the landlord policy bundled with your home and auto policies.
DP-1 vs DP-2 vs DP-3: which landlord policy should you buy?
Buy a DP-3. Landlord policies come in three standard dwelling forms, and the difference is which losses they cover and how they pay a claim.
| Form | Perils covered | How claims are paid | Fair rental value |
|---|---|---|---|
| DP-1 (basic) | Named perils only, such as fire, lightning, windstorm, hail, smoke and explosion | Actual cash value (depreciation deducted) | Optional |
| DP-2 (broad) | A longer named-perils list, adding falling objects, weight of ice and snow, and accidental water discharge | Replacement cost on the dwelling | Included |
| DP-3 (special) | Open perils: everything except the listed exclusions | Replacement cost | Included |
Actual cash value is the replacement cost of damaged property minus depreciation. On a 15-year-old roof, that deduction can leave you paying a large share of a hail claim yourself, and hail is a fact of life in the Twin Cities. A DP-1 runs about $700 to $900 a year against $1,100 to $1,300 for a DP-3, according to Steadily’s comparison of the two forms, and the few hundred dollars saved is not worth the gap.
Freedom Rental Property Management requires every owner we manage for to carry a DP-3 landlord policy at full replacement cost.
How much liability coverage does a landlord need in Minnesota?
A Minnesota landlord needs at least $300,000 in liability coverage on a rental, and $500,000 is better. Those are the limits we require on every home we manage, along with Freedom named as an additional insured on the owner’s policy. I explain why that endorsement protects both of us in Should I Add My Property Manager as Additional Insured?
On top of that, add an umbrella policy. The Insurance Information Institute lists renting out a property you own as one of the situations that raise your lawsuit risk, and it notes that most insurers want $300,000 of homeowners liability and $250,000 of auto liability in place before they will sell a $1 million umbrella.
My own approach is to hold all of my rentals in one LLC and put a $1 million or $2 million umbrella over all of them. The LLC separates the rentals from my personal assets, and the umbrella is what pays a large claim. An LLC without enough insurance behind it is a thin layer of protection.
What should Minnesota landlords add to a landlord policy?
Water backup coverage
Water backup coverage pays for damage when a sewer line backs up or a sump pump fails and water comes up through a floor drain. Standard landlord and homeowners policies exclude it, and it’s an inexpensive endorsement to add. With finished basements across Hennepin, Anoka and Wright counties, this is the add-on I’d never skip. It’s also why the annual HVAC service we require on every Freedom home includes a sump pump test.
Flood insurance
Flood insurance is a separate policy, and FloodSmart, the National Flood Insurance Program’s site, states that most homeowners insurance does not cover flood damage. If a rental sits near a lake, river or creek, ask your agent to check the flood zone and quote a flood policy before you decide to skip it.
Vacancy between tenants
Read the vacancy clause before a long turnover or remodel. The standard HO-3 homeowners form stops covering vandalism and glass breakage once a home has been vacant for more than 60 consecutive days, according to Adjusters International, and dwelling policies carry similar vacancy limits. If the home will sit empty longer than your policy allows, tell your agent before the deadline, and keep the heat on all winter so a frozen pipe claim isn’t excluded too.
Why should tenants carry renters insurance in Minnesota?
Tenants should carry renters insurance because the landlord’s policy doesn’t cover anything the tenant owns. The Insurance Information Institute is direct about this: the landlord’s policy covers the building, not the tenant’s possessions. Renters insurance covers the tenant’s belongings, the tenant’s liability if they or their pet injure someone, and additional living expenses if a covered loss makes the home unlivable.
No Minnesota law requires renters insurance, but a landlord can require it in the lease. It’s inexpensive: renters insurance in Minnesota averages about $218 a year, or $18 a month, for $40,000 of belongings and $300,000 of liability, according to Insure.com.
Freedom’s renters insurance requirement
Every tenant who signs a Freedom lease must carry renters insurance with at least $100,000 in liability coverage, $25,000 in pet bite liability and $1,000 in mold remediation coverage. The coverage comes through our Resident Benefits Package, and a tenant can bring their own policy instead if it meets the same minimums.
Contents coverage is the tenant’s choice. The liability coverage is the part that protects the owner.
Why does the tenant’s liability coverage matter to you as the owner? If a tenant leaves a pan on the stove and starts a kitchen fire, the tenant’s liability coverage can pay for that damage, which can save you your deductible and a claim on your own policy. If the tenant’s dog bites a neighbor, the claim goes to the tenant’s insurer first instead of landing on you.
I cover how pet coverage works alongside our security deposits in Pet Fees, Renters Insurance, and Why It All Matters for Your Bottom Line.
Converting your home to a rental in Minnesota: an insurance checklist
The rental property insurance question comes up most with owners turning the home they lived in into a rental. If that’s you, work through these steps with your agent before the lease starts.
Seven insurance steps before the tenant moves in
- Switch the homeowners policy to a DP-3 landlord policy effective on the lease start date.
- Confirm the dwelling limit matches today’s rebuild cost, not the price you paid for the home.
- Set liability at $300,000 or more, and add or extend an umbrella to cover the rental.
- Add water backup coverage, and ask about flood coverage if the home is near water.
- Name your property manager as an additional insured if you hire one.
- Require renters insurance in the lease, with the liability limits written into it.
- Send the new declarations page to your mortgage lender.
Insurance is one piece of the conversion. Taxes are another, and I walk through them in the tax side of converting your home to a rental in Minnesota. If you’re still deciding whether to rent the home at all, start with Should I Sell or Rent My House?
Frequently asked questions
Do I need landlord insurance if I rent out my house in Minnesota?
Yes. A homeowners policy is written for a home you live in, and a claim on a home you have rented to tenants can be denied. Minnesota law doesn’t require landlord insurance, but your mortgage lender requires coverage, and Freedom Rental Property Management requires a DP-3 landlord policy on every home it manages.
Is landlord insurance cheaper than homeowners insurance in Minnesota?
On average, yes. NAIC premium data for Minnesota shows dwelling (landlord) policies averaging about half the premium of HO-3 homeowners policies at the same coverage amount, such as $754 versus $1,505 a year for homes insured at $250,000 to $274,999. Adding landlord liability, water backup and fair rental value raises the quote, so compare full quotes from your agent.
Does landlord insurance cover the tenant’s belongings?
No. Landlord insurance covers the building and the items you leave for the tenant’s use, such as appliances and a snow blower. The tenant needs renters insurance to cover their own belongings and their own liability.
Can a Minnesota landlord require renters insurance?
Yes. No Minnesota law requires tenants to carry renters insurance, but a lease can require it. Every Freedom lease requires renters insurance with at least $100,000 in liability, $25,000 in pet bite liability and $1,000 in mold coverage.
What is the difference between a DP-1 and a DP-3 policy?
A DP-1 covers only named perils and pays claims at actual cash value, which deducts depreciation. A DP-3 covers all perils except listed exclusions, pays at replacement cost and includes fair rental value coverage. The DP-3 costs more and is the policy to buy for a rental home.
Does landlord insurance pay rent if a tenant stops paying?
No. Fair rental value coverage replaces rent lost while the home is repaired after a covered loss, such as a fire. A tenant who stops paying is a screening and eviction issue, not an insurance claim.
Get help insuring and managing your Minnesota rental
Freedom Rental Property Management manages rental homes across the Twin Cities, from Maple Grove and Plymouth to Minneapolis. We require a DP-3 landlord policy, solid liability limits and an additional insured endorsement on every home we manage, and every tenant carries the renters insurance our lease requires. That structure protects the owner long before anyone files a claim.
If you’re turning your home into a rental, contact us or request a free rental analysis to see what your home would rent for. You can also check our full service area.
