If you’re thinking about making a living (or at least a little extra money) by renting out residential properties that you own, or if unforeseen circumstances (such as higher than expected costs for a vacation home or being unable to sell your home after buying a new one) are forcing you to consider becoming an “accidental” landlord, it is important to do an insurance review to properly protect yourself and your property. Otherwise, you may end up with more hassles and expenses than you bargained for.
When you charge someone rent to live in a home that you own, your insurance needs are much different than those of a homeowner living in their own home. In addition, you need to make sure that your tenants also have the proper insurance they need. One of the first things you should do if you are going to take on the role of landlord, or if you rent and it’s been a while since you have reviewed your insurance coverage, is to contact an insurance professional who can conduct a comprehensive review of your situation and make recommendations to ensure you and your property are adequately protected with insurance.
The following tips can help you be informed about things you may need to discuss with your insurance professional as you work together to review your coverage needs for your new (or existing) rental property.
If you rent only occasionally, you may not need landlord’s insurance.
If, for example, you own a vacation property and you’re only renting it for a few weeks per year, your homeowners policy may be adequate, but when your rentals become more than occasional, or your insurer does not allow even short-term rentals, you will need a separate insurance policy. When renting crosses the line from occasional to a more permanent situation in the eyes of your insurance company differs from insurer to insurer. That’s why it’s important to have your insurance professional explain in detail what your existing policy covers in this situation and when you need to graduate to a separate policy to cover your rental property.
Living under the same roof as your renter may require you add an endorsement to your homeowners policy. If you live in the same home as your tenant, you can endorse your homeowners policy with ‘unit rented to others’ coverage to address the landlord-tenant situation. However, if you don’t live in the same home as your tenant or you own a secondary home that you regularly rent out, you definitely need a separate policy.
Hoping your homeowners insurance will suffice is a risky strategy. While it may be tempting to let your homeowners policy stand, especially if you think your rental situation will only be short term, it’s risky because if you do have to make a claim it may not be covered. The vast majority of homeowners insurance policies do not allow for any consideration that the home is being rented out. If an insurer is not aware of the rental, if something does happen it is highly likely that the claim will be denied. You will minimize your risk of having to foot the bill for damage to your rental property if you are upfront with your insurer and pay for any additional coverage you may need.
Consider the amount and type of coverage you might need. A property that you rent, just like the home you live in, is a significant asset that can be very costly to repair and replace—which is why you want to make sure that you have it adequately protected with the right type and level of insurance coverage.
Your insurance professional can explain the details of different insurance policy options available for your rental property. Generally, these types of policies (also known as dwelling policies) differ based on the amount of coverage they offer. While more basic policies are usually cheaper, the protection they offer is less broad, and that may leave you on the hook for extensive repairs if major damage to your property occurs. As with any insurance decision, it is important to weigh not only the monthly or annual premium cost, but the value of the protection you are getting for your money.
In addition to insurance coverage for the structural rental property itself, it is also important to make sure you have sufficient liability coverage to protect yourself if you are sued for damages from accidents such as an indoor fall or someone slipping on an icy sidewalk. It’s also a good idea to remind individuals that rent from you that they need renter’s insurance to protect their personal property while living in your residence.
Know your risks and reduce them with the right insurance options. Being a landlord comes with many responsibilities and some risk, so it is important to be aware of how the decision to rent your property will affect you and what steps you need to take to protect your property and reduce any potential personal liabilities. If you are considering renting a residential property or vacation home, or if you are currently renting out property and need to look at your existing coverage, talk to one of our insurance professionals to review your situation so you can enjoy the extra income a rental property can provide with complete peace of mind.
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About the Author:
Michele Merkel takes care of our commercial lines customers at Kemner Iott Benz, and has been with Kemner Iott Benz since 1991. Michele enjoys reading, being in the sunshine and in her spare time, helps plan weddings. Michele has lived in Adrian since 1978 and along with her husband, Tom, they have raised 4 great kids.