Landlord Insurance in Birmingham: What You Should Know

You might think that owning a rental property in Birmingham is easy money, and sometimes, it is. But with 90% of buildings facing significant wildfire risk, 16% at high risk of flooding, and the city rated at extreme risk for heat and heavy precipitation, one severe storm, fire, or flood could quickly wipe out all your rental income. Instead of waiting for disaster to strike, it’s important to purchase a landlord insurance policy and proactively protect your livelihood. 

This guide explains Birmingham landlord insurance in detail, including what it covers, how it compares to homeowners insurance, what you can expect to pay, and how to file a claim if something goes wrong. Whether you’ve been in the rental business for years or you’ve just landed your first property, you’ll leave with a better understanding of how to choose coverage that keeps your investment safe despite the city’s challenges. 

What Is Landlord Insurance?

Landlord insurance is a type of policy designed for properties you rent to tenants, whether it’s a single- or multi-family home, duplex, or apartment. Since it covers risks specific to rental properties, it’s different from homeowners insurance. That means you won’t be eligible to purchase a landlord policy if you live on the property, even if you rent out rooms or another floor to tenants. Most Birmingham landlord insurance policies include three main areas of coverage: 

1. Dwelling coverage: Protects the building itself against covered events like fire, wind, hail, lightning, etc. 

2. Liability coverage: Helps pay medical bills or legal fees if someone is injured on your property

3. Loss of rental income: Reimburses lost rent if a covered event forces your tenants to move out during repairs

Beyond these basics, you can customize your policy with optional add-ons. These can be particularly useful for Birmingham properties exposed to unique weather and infrastructure risks:

• Personal property coverage: Covers your belongings inside the rental, like a fridge, washer, dryer, or furniture. 

• Equipment breakdown coverage: Pays to repair or replace systems like HVAC or electrical if they suddenly fail. 

• Vandalism coverage: Protects against intentional damage like graffiti or broken windows. 

• Burglary coverage: Expands coverage to pay for damage caused by a break-in and stolen items you own.

• Flood insurance: Standard landlord insurance policies don’t cover water damage from rising creeks or heavy rain. If your property is near Village Creek, Valley Creek, or another low-lying spot, flood coverage ensures your investment is safe.

• Ordinance or law coverage: Helps cover the cost of bringing the property up to current building codes after damage. This is useful for older Birmingham homes.

• Construction or renovation coverage: Protects the property while you’re building or remodeling, before tenants move in.

• Sewer and drain backup coverage: Heavy rain can cause older pipes to burst, sending water into basements or ground-level units. 

• Tenant default insurance: Helps cover a tenant’s rent payment if they fail to make it.

• Legal expense coverage: Covers attorney and court costs for tenant disputes, like evictions.

Keep in mind that vacant rentals come with a different set of risks than those with active tenants. When a property sits empty, problems like water leaks or roof damage can go unnoticed for weeks, causing more costly repairs. Empty properties are also more likely to attract break-ins, vandalism, or squatters, which is why many Birmingham landlord insurance policies scale back or end certain protections after 30-90 days without occupancy. Look into a vacant property add-on if you know yours will be empty, whether it’s for renovations or during a slow market. 

It’s just as important to understand what your policy won’t cover. Although every plan is different, most Birmingham landlord insurance policies exclude the following: 

• Tenant belongings
• Earthquakes
• Construction defects
• Neglect
• Pest damage (termites, rodents, etc.)
• Routine maintenance
• Damage occurring during a vacancy
• Tenant-caused damages
• Mold removal 

Making sure your Birmingham landlord insurance policy matches your property’s location, condition, and other factors can save you from significant losses later on. 

Understanding Landlord Insurance vs. Homeowners Insurance

During your search for the right policy for you, it’s essential to be able to spot the differences between landlord insurance vs. homeowners insurance. Using the wrong type of policy can leave you without coverage if you have to file a claim. Here are the main differences:

• Homeowners insurance covers the home you live in, while landlord insurance covers the home you rent out to other people. 

• Homeowners insurance protects your personal belongings, but landlord insurance often excludes your belongings unless you add coverage for them to the policy, and doesn’t cover tenant possessions. 

• Homeowners insurance pays for your living expenses if you have to move out, while landlord insurance pays lost rental income if your tenants have to move out. 

• Homeowners insurance is intended for the risks of being a homeowner, but landlord insurance is designed for the risks of being a landlord. 

Homeowners insurance and landlord insurance both cover the home itself as well as liability coverage if you’re sued or required to pay medical bills. Both policies are important to have, but they’ll only come in handy if you use them in the right situations. 

Different Types of Rental Property Coverage

Most landlord insurance in Birmingham falls under one of three categories, including DP1, DP2, and DP3. These vary in how much protection they offer, what events they cover, and how claims are paid out. Choosing the right one comes down to your budget, how risky you’re willing to be, and where your property is located. 

DP1 Policies: Basic Coverage for Narrow Events

A DP1 policy (Dwelling Fire Form 1) is the most affordable option for landlord insurance in Birmingham, but also the most limited. It covers a short list of specific events (known as “named perils”) like fire, lightning, internal explosions, wind, hail, and smoke damage. Damage from vandalism, water leaks, theft, or falling tree limbs usually isn’t included unless you add them on.

Claims are paid based on the property’s depreciated value, not what it would cost to replace items at today’s prices. This is referred to as actual cash value, or ACV, and means that you could end up with a payout that’s far less than the replacement actually costs. 

Because it’s minimal coverage, DP1 can work for rentals that are vacant, being renovated, or located in low-risk parts of Birmingham. However, many landlords find the gaps too risky, especially in older neighborhoods where storm and water damage are more common.

DP2 Policies: Broader Protection for Common Risks

DP2 policies (Broad Form) provide more protection than DP1 and are often the sweet spot for landlords who want strong coverage without high premiums. In addition to DP1’s basics, DP2 usually covers vandalism, theft, water damage from burst pipes, falling objects, damage from ice or snow, and electrical surges.

Claims are typically paid at full replacement cost, meaning you can repair or replace damaged property with new materials at today’s prices, without depreciation. If a covered event forces tenants to move out, you can also be reimbursed for lost rent during repairs.

DP2 policies are a good fit for occupied rentals in established Birmingham neighborhoods like Crestwood, Forest Park, and Highland Park, which have a decent number of older homes and local amenities. If minimal protection doesn’t cut it for you, look into one of these middle tier plans. 

DP3 Policies: Comprehensive “Open Peril” Coverage

DP3, or “Special Form,” is the most comprehensive type of landlord insurance in Birmingham. Instead of only covering named perils, it works the other way, covering everything unless it’s specifically excluded. Common exclusions include floods, earthquakes, sewer backups, and normal wear and tear. Like DP2, DP3 pays based on replacement cost and usually includes loss-of-rent coverage, liability protection, and coverage for the structure itself. 

If you’re a landlord with properties in competitive areas like Lakeview, Redmont Park, or parts of downtown, a DP3 policy may work best. A fire, storm, or other covered event could leave your unit empty for weeks, costing you thousands in missed rent. With a DP3 policy, you’ll have the financial support you need to keep your income flowing while repairs are made. This can be a relief for anyone who relies on their property as a primary income source.

Umbrella Insurance

Umbrella insurance is like a backup plan for your main Birmingham landlord insurance policy. Your regular policy covers liability up to a certain limit, but if a lawsuit or injury claim costs more than that, umbrella insurance can pay the difference.

Umbrella insurance is worth looking into if:

• You own more than one rental property.
• You have savings, investments, or other valuable assets.
• Your rentals are in busy areas where accidents are more likely.

It’s usually affordable ($383 on average per year) and can give you extra peace of mind, especially in a city like Birmingham where heavy rain, heat, and busy neighborhoods can increase the risk of accidents.

Limited Liability Company (LLC)

While not a form of landlord insurance in Birmingham, a Limited Liability Company, or LLC, is another way to safeguard yourself and your investment. By owning your property through an LLC, you separate your personal finances from your rental business, which can help protect your personal assets if you get hit with a lawsuit or repair bill you don’t have the means to pay. Additionally, tenants, lenders, and contractors may take you more seriously when you operate as a business. 

An LLC doesn’t replace Birmingham landlord insurance, but it can work well alongside it. The LLC limits what’s at risk, while the insurance covers the costs of legal defense, repairs, or settlements. 

Landlord Insurance Costs in Birmingham

Understanding landlord insurance costs in Birmingham can help you budget wisely and avoid surprises. Based on current market data, the average annual premium you can expect to pay in Alabama is $1,094, which comes out to an extra $91.17 per month. However, remember that the price you end up paying can vary based on factors like:

• Location risk: Homes near flood-prone zones typically cost more to insure. 

• Policy type: DP1 plans are the most affordable, but you may own a property that needs more comprehensive coverage, like that of a DP3 plan. When the insurance company pays based on replacement cost instead of actual cash value, it’ll raise your premium. 

• Property condition and updates: A newer roof, modern wiring, and security systems can qualify you for discounts. Renovations are often less prone to damage and easier to replace, while security can prevent damage from crime. 

• Optional add-ons: Choosing multiple add-ons like flood insurance, vandalism, sewer backup, or vacancy coverage will raise your premium, but they also protect you from much larger financial losses. 

• Local hazards: Things like frequent storms, hail, wildfire risk, and intense heat waves can drive insurance costs up.

Customized landlord insurance in Birmingham can keep the cost of your policy reasonable while still providing plenty of protection for your business. 

How to File a Landlord Insurance Claim in Birmingham

If you ever need to file a claim, acting quickly and staying organized can help you get paid faster while preventing further property damage. Here are the steps to take:

1. Document the damage right away: Take quality photos and videos of any damage. 

2. Prevent more damage: Although you generally don’t want to touch anything until the adjuster sees the damage, you are allowed to make repairs that

3. Call your insurance company: Report the claim as soon as possible. 

4. Provide details: Include repair estimates, receipts, and any communication or notes from your tenants. 

5. Let the adjuster inspect: Make yourself and the property available to the adjuster and answer any questions they may have. 

6. Keep all records: Save every email, letter, and call related to the claim. 

In Birmingham, the insurance company must acknowledge that they received your claim within 15 days. From there, they have 30 days to accept or deny the claim, but this period may be extended if they need additional information. You’ll usually receive payment within 30 days, unless a different timeline is specified in your policy. 

Takeaway: Protect Your Investment with Birmingham Landlord Insurance 

Having the right landlord insurance in Birmingham is your best defense against the unexpected risks of being a landlord. Whether you choose a simple DP1 plan or a DP3 policy for full coverage, matching your policy to your property’s location and characteristics is essential. At the same time, knowing how much landlord insurance costs can help you plan ahead. 

Adding umbrella insurance, forming an LLC, and understanding landlord insurance vs. homeowners insurance can give you extra protection and peace of mind. From property damage to liability claims and medical bills, being prepared and knowing how to file a claim can help ensure a smooth process for everyone. 

Before your next lease is signed, make sure your policy is ready for anything Birmingham throws at it, and know that you don’t have to do it alone. With guidance from a local property manager like Evernest, you can ensure your business is in good hands through every uncertainty that comes with being a landlord. Reach out today to get connected with a member of our team and learn more about how we can help your investment thrive.