For property owners in Arizona, protecting rental properties is a top priority. One insurance product that often comes into play is Lessor's Risk Only (LRO) insurance. Whether you own a single-family rental home or a multi-unit apartment building, understanding LRO insurance can help you mitigate financial risks associated with leasing property to tenants.

This comprehensive guide will explore what Arizona Lessor's Risk Only insurance is, why it matters, how it works, and what property owners need to consider when purchasing this coverage. By the end, landlords and property managers will have a clear understanding of how to safeguard their investments effectively.

Lessor's Risk Only insurance, often abbreviated as LRO insurance, is a specialized type of property insurance designed specifically for landlords. Unlike a standard landlord insurance policy that covers both the building and liability, LRO insurance focuses solely on protecting the physical structure of a rental property when it is leased to tenants.

In essence, this insurance covers the property owner’s building against damage caused by fire, vandalism, certain natural disasters, and other perils while the property is occupied by tenants. It does not cover the tenant’s personal belongings or liability, nor does it typically cover loss of rental income.

How LRO Insurance Differs from Other Landlord Policies

Many landlords confuse LRO insurance with standard landlord insurance or homeowners insurance. The key difference lies in the scope of coverage:

• Homeowners Insurance: Designed for owner-occupied properties, this policy covers the dwelling, personal liability, and personal property of the owner.
• Landlord Insurance: Broader coverage that includes the building, liability, loss of rental income, and sometimes tenant-related risks.
• Lessor's Risk Only Insurance: Focuses exclusively on the physical structure, protecting the building itself from damage while leased.

For Arizona landlords who want a cost-effective way to insure their building without additional liability or loss of income coverage, LRO insurance is an attractive option. This type of insurance is particularly beneficial for property owners who lease out commercial spaces, as it allows them to minimize their insurance costs while still safeguarding their investment. Additionally, many landlords appreciate the straightforward nature of LRO insurance, as it eliminates the complexities associated with broader policies that may not be necessary for their specific situation.

Moreover, LRO insurance can be tailored to meet the unique needs of different properties. For instance, landlords with multiple units or those who own properties in areas prone to specific risks, such as flooding or earthquakes, can often find customized policies that address these concerns. This flexibility makes LRO insurance a viable option for a diverse range of property owners, allowing them to ensure their buildings are protected without overextending their insurance budget.

Arizona’s unique climate and real estate market dynamics make LRO insurance particularly relevant for landlords in the state. Understanding why this insurance matters can help property owners make informed decisions.

Protecting Against Common Property Risks in Arizona

Arizona’s desert environment presents certain risks that can impact rental properties:

• Wildfires: The state frequently experiences wildfires, especially in rural and suburban areas. These fires can cause significant damage to buildings and land.
• Monsoon Storms: Seasonal monsoon storms bring heavy rains, flash floods, and high winds, which can damage roofs, windows, and other structural components.
• Vandalism and Theft: Rental properties, especially those that are vacant between tenants, are vulnerable to vandalism and theft.

LRO insurance helps landlords mitigate financial losses from these and other perils by covering repairs or rebuilding costs for the physical structure. Furthermore, the coverage can extend to damages caused by unexpected events such as earthquakes, which, while less common, can still occur in Arizona. This comprehensive approach to risk management ensures that landlords are not left financially exposed in the event of a disaster.

Legal and Lease Agreement Considerations

Arizona law and lease agreements often require landlords to maintain insurance coverage on rental properties. While tenants are generally responsible for insuring their personal belongings, landlords must protect the building itself.

Many lease agreements explicitly state that the landlord will maintain insurance on the property. Having LRO insurance ensures compliance with these contractual obligations and provides peace of mind to both parties. Additionally, understanding the nuances of Arizona's landlord-tenant laws can help landlords navigate potential disputes. For instance, if a tenant experiences damage due to a covered peril, having LRO insurance can facilitate quicker repairs and minimize tenant turnover, ultimately preserving rental income.

Cost-Effective Coverage for Landlords

LRO insurance is typically less expensive than comprehensive landlord insurance policies because it excludes liability and loss of rental income coverage. For landlords who already carry separate liability policies or who manage risks through other means, LRO insurance offers an affordable way to protect the building. This cost-effectiveness allows landlords to allocate their budgets more efficiently, potentially investing in property improvements or enhancements that can attract higher-quality tenants.

Moreover, the financial benefits of LRO insurance extend beyond mere savings. By having this specialized coverage, landlords can also improve their standing with potential investors or financial institutions, as it demonstrates a proactive approach to risk management. In a competitive rental market like Arizona, showcasing responsible management practices can be a significant advantage when seeking financing for property acquisitions or renovations.

Understanding the specific coverage provided by LRO insurance is essential. While policies vary by insurer, the following outlines the typical protections offered under an Arizona LRO insurance policy.

Covered Perils

LRO insurance generally covers damage to the rental property caused by the following perils:

• Fire and smoke damage
• Lightning strikes
• Windstorm and hail damage
• Explosion
• Vandalism and malicious mischief
• Falling objects
• Weight of snow or ice (less common in Arizona but may apply in higher elevations)
• Water damage from plumbing or HVAC system failures (depending on policy)
• Volcanic eruption (rare but included in many standard policies)

It’s important to review the policy declarations page carefully to understand which perils are included or excluded. Additionally, landlords should be aware that certain natural disasters, such as wildfires, can also pose significant risks in Arizona, particularly during the dry season. While LRO insurance may cover some fire-related damages, it is crucial to verify the specifics of coverage to ensure adequate protection against such prevalent threats.

Exclusions and Limitations

LRO insurance does not cover everything. Common exclusions include:

• Tenant’s personal property: Tenants must carry renters insurance to protect their belongings.
• Liability claims: Injuries or damages caused by the property owner’s negligence are not covered.
• Loss of rental income: If the property becomes uninhabitable due to a covered peril, lost rent is not reimbursed.
• Flood damage: Standard LRO policies exclude flood damage, which requires separate flood insurance.
• Earthquake damage: Earthquake coverage is generally excluded and must be purchased separately.

Landlords should also be cautious about the potential for mold damage, which can arise from water leaks or high humidity levels. Many LRO policies have specific exclusions related to mold, making it essential for landlords to implement preventive measures and consider additional coverage options if they are in areas prone to moisture issues. Understanding these limitations can help landlords avoid unexpected costs and ensure they have the necessary protections in place.

Optional Endorsements and Add-Ons

Some insurers offer endorsements that can be added to LRO policies to expand coverage, such as:

• Extended replacement cost: Covers rebuilding costs beyond the policy limit if construction costs rise.
• Equipment breakdown coverage: Protects HVAC systems, boilers, and other mechanical equipment.
• Ordinance or law coverage: Covers additional costs to bring a building up to current building codes after damage.

Landlords should discuss these options with their insurance agent to tailor coverage to their needs. Additionally, some insurers may offer specialized coverage for unique rental situations, such as short-term vacation rentals or properties with multiple units. These tailored policies can provide enhanced protection against specific risks associated with different types of rental arrangements, ensuring that landlords are fully covered regardless of their property's use.

Selecting the right LRO insurance policy requires careful consideration of several factors. Here are key steps landlords should take to ensure they get appropriate coverage.

Evaluate the Property Type and Location

The type of rental property—single-family home, duplex, apartment complex—affects insurance needs. Larger or multi-unit buildings may require higher coverage limits or additional endorsements.

Location is also critical. Properties in wildfire-prone areas or flood zones may need specialized coverage or additional policies. For instance, Arizona's diverse geography means that a property in the Phoenix metropolitan area may face different risks compared to one in the mountainous regions near Flagstaff. Understanding local environmental risks can help landlords make informed decisions about necessary coverage.

Determine Adequate Coverage Limits

Coverage limits should reflect the full replacement cost of the building, not just its market value. Construction costs in Arizona can vary widely depending on materials and labor availability. For example, the rising costs of building materials due to supply chain issues can significantly impact replacement values, making it essential for landlords to stay updated on these trends.

Many insurers offer replacement cost estimates or appraisals to help landlords set appropriate limits. Underinsuring a property can lead to significant out-of-pocket expenses after a loss. Additionally, landlords should consider the potential costs of temporary housing for tenants if the property becomes uninhabitable, as this can also factor into the coverage needed.

Compare Quotes from Multiple Insurers

Insurance premiums can differ substantially between companies. Landlords should obtain multiple quotes and compare not only price but also coverage details, exclusions, and customer service reputation. It’s beneficial to ask for insights from other landlords or real estate professionals who have experience with various insurers in the area.

Arizona has several insurers specializing in landlord and LRO insurance, including national carriers and regional companies familiar with local risks. Some insurers may also offer discounts for bundled policies or for properties equipped with safety features, such as security systems or fire alarms, which can further reduce costs while enhancing protection.

Review Policy Terms and Conditions Carefully

Reading the fine print is essential. Pay attention to:

• Deductibles – higher deductibles lower premiums but increase out-of-pocket costs.
• Claims process – understand how to file claims and expected timelines.
• Renewal terms – check if premiums can increase significantly at renewal.

Moreover, landlords should also look for any specific exclusions that could affect their coverage, such as limitations on certain types of water damage or liability claims. Understanding these nuances can prevent unpleasant surprises when it comes time to file a claim.

Work with a Knowledgeable Insurance Agent



An experienced insurance agent or broker can provide valuable guidance tailored to Arizona landlords. They can help identify coverage gaps, recommend endorsements, and assist with claims if needed. A knowledgeable agent will also be familiar with the latest regulations and market trends, ensuring that landlords are compliant and adequately protected.

Additionally, a good agent can facilitate communication between the landlord and the insurance company, making the process smoother and more efficient. They can also provide ongoing support, helping landlords reassess their coverage as their property portfolio grows or as market conditions change, ensuring that they always have the best possible protection in place.

Is LRO Insurance Required by Law in Arizona?

Arizona does not mandate landlords to carry LRO insurance specifically. However, landlords are legally responsible for maintaining safe and habitable properties, and many lease agreements require insurance coverage. Carrying LRO insurance is a practical way to meet these obligations and protect property investments.

Can I Use a Standard Homeowners Policy for a Rental Property?

Standard homeowners insurance policies typically exclude coverage for rental properties or impose significant restrictions. Using a homeowners policy for a rental may leave landlords exposed to uncovered losses. It is advisable to obtain a landlord-specific policy like LRO insurance.

Does LRO Insurance Cover Tenant Injuries on the Property?

No. LRO insurance does not provide liability coverage for injuries sustained by tenants or visitors. Landlords should consider purchasing separate liability insurance or a comprehensive landlord policy to cover such risks.

What Happens If the Property Is Vacant?

Many LRO policies have restrictions or exclusions if the property is vacant for an extended period, often 30 to 60 days. Vacant properties are at higher risk for vandalism and undetected damage. Landlords should notify insurers if a property will be vacant and consider vacancy permits or specialized policies.

How Much Does LRO Insurance Cost in Arizona?

Premiums vary based on factors such as property size, location, age, and coverage limits. On average, Arizona landlords might pay between $500 and $1,500 annually for LRO insurance on a typical single-family rental home. Multi-unit buildings or properties in high-risk areas may incur higher premiums.

While insurance is crucial, proactive property maintenance can reduce the likelihood of claims and keep premiums manageable.

Regular Property Inspections

Conduct routine inspections to identify and address maintenance issues like roof leaks, faulty wiring, or plumbing problems. Early repairs prevent damage escalation and potential insurance claims.

Implement Safety Measures

Install smoke detectors, fire extinguishers, and security systems to protect the property and tenants. These measures can also qualify landlords for insurance discounts.

Manage Landscaping and Drainage

Proper landscaping reduces wildfire risk and prevents water pooling that could cause foundation damage. Clear debris and maintain gutters regularly.

Screen Tenants Carefully

Responsible tenants are less likely to cause property damage or engage in activities that increase insurance risks. Use thorough background and credit checks as part of tenant screening.

Arizona landlords face unique challenges due to the state’s climate, legal environment, and rental market dynamics. Lessor's Risk Only insurance offers a focused, cost-effective way to protect the physical structure of rental properties from common risks such as fire, vandalism, and storm damage.

While LRO insurance does not cover liability or loss of rental income, it serves as a foundational layer of protection. Landlords should assess their overall insurance needs, property characteristics, and risk tolerance to determine if LRO insurance fits their portfolio.

Partnering with a knowledgeable insurance agent and maintaining the property proactively will help ensure that rental investments remain secure and profitable over the long term.