When you insure a single-family rental property, it’s natural to assume your policy has you covered for every scenario. But the reality is that standard insurance policies come with exclusions, risks or damages they specifically won’t cover.
For single-family investors, understanding these exclusions is critical. Without that knowledge, you may be left footing the bill for costly repairs that you assumed were covered. Let’s look at the most common exclusions that impact single-family rental properties.
1. Wear-and-Tear
No policy will cover the normal “living in” of a home. Everyday wear-and-tear,like scuffed walls, worn carpet, or faded paint,is expected in a rental property.
As a single-family investor, you should plan to budget for fresh paint, new flooring, or appliance replacement between tenants. Security deposits can offset some costs, but much of this upkeep is simply part of maintaining a home over time.
2. Intentional Tenant Damage
It’s a frustrating reality: if a tenant intentionally damages your home, your insurance policy probably won’t cover it. Examples include broken doors, removed appliances, or spray-painted walls.
Because you’ve granted the tenant legal access through a lease, insurers don’t treat this as vandalism. Instead, you’ll need to enforce your lease terms, through the security deposit or, in extreme cases, a civil lawsuit, to recover those losses.
3. Mold & Fungus
Single-family homes are especially vulnerable to mold issues if there’s a leak under a sink, a slow drip in the roof, or standing water in a basement. Unfortunately, most insurance carriers either exclude mold entirely or cap coverage at a very low amount.
Some policies classify mold as a pollutant, meaning it’s not covered if your policy has a pollution exclusion. Left untreated, mold can damage drywall, flooring, and even HVAC systems, not to mention create liability concerns if it affects tenant health.
4. Sewer & Drain Backup
Backups caused by tree roots or clogged lines are more common in older single-family homes, and the resulting damage can be significant. But most property policies exclude water damage from sewer or drain backups.
To avoid a nasty (and expensive) surprise, consider adding a Sewer & Drain Backup endorsement to your policy. It’s an inexpensive add-on that can save thousands.
5. Natural Disasters: Earthquake, Sinkholes & Flood
Single-family homes located near rivers, on shifting soil, or in flood-prone areas carry unique risks. Standard insurance won’t cover earthquakes, sinkholes, or floods, but you can usually purchase coverage separately.
Important note: flood insurance only applies to water entering from outside (like heavy rains or overflowing rivers), not plumbing leaks or sewer issues inside your home.
6. Faulty Workmanship
If you’ve ever renovated a rental property, you know the importance of hiring quality contractors. But if poor construction, like a poorly built deck or roof repair, causes damage, that’s considered faulty workmanship, and it won’t be covered by your policy.
Instead, any damages caused by shoddy work should be claimed against the contractor’s insurance. This is why it’s essential to only hire properly insured and licensed professionals for your rental property projects.
Why This Matters for Single-Family Investors
Unlike multifamily buildings where costs can be shared across multiple units, single-family investors often absorb losses directly. That’s why it’s crucial to know your coverage gaps and plan for them.
Standard homeowners policies don’t fully protect rental activity.
Investment property policies are designed specifically for landlords and offer better protection.
Endorsements (like sewer backup or flood insurance) can fill critical gaps.
Final Thoughts + Next Steps
Insurance exclusions aren’t just fine print, they directly impact your bottom line as a single-family investor. By knowing what isn’t covered, you can plan ahead, set aside reserves for predictable expenses, and buy endorsements or separate policies where needed.
Next Step for Investors: Don’t leave your rental property underprotected. At Colorado Realty and Property Management, we help single-family investors like you navigate insurance requirements, avoid costly surprises, and keep your investment profitable.
Contact us today to review your coverage and learn how we can help protect both your property and your bottom line.
