Insurance considerations when you’re renting out your house
If you’re a homeowner who has to relocate for a new job, one of the big issues you’ll face is what to do with your house. In the midst of a soft housing market, the chances of selling your house quickly and at a reasonable price can be slim.
As such, some homeowners are opting to rent out the houses they’re leaving behind until the housing market rebounds. The National Association of Realtors estimates about 5 percent of homeowners are renting out their primary residences.
One of the items for a fledgling landlord to put on his to-do list is to call his home insurance company.
“You’re still the owner, and it’s still your responsibility to have it insured,” says Jeanne Salvatore, a spokeswoman for the Insurance Information Institute. “If it burns down, you want to be able to rebuild it.”
But with the change in your residency, your insurance carrier no longer considers you a homeowner. You’re now a landlord with different coverage needs. For example, unless you’re renting the house furnished, the insurance company will take off the coverage for your personal property. (If you’re leaving any of your belongings behind for the renter to use, such as furniture, lawn equipment or appliances, you’ll want property coverage for those items.)
The importance of letting your insurer know about the change in your status can’t be overstated. Your policy is a legally binding contract; if you rent out the property without telling the insurer, you’re put yourself at risk.
“In all likelihood, if there were a claim filed and an insurance company was tipped off that they’re renting it out, there would be an investigation,” says Sandra Spann, a spokesman for American Family Insurance. “A lot of different things could happen.”
Here are some things to put on your insurance checklist if you’re renting out your home:
Liability coverage. You’ll probably want to increase your liability coverage or add a personal liability umbrella. “When you have a renter, some of the issues you’ve got are wrongful eviction, invasion of privacy, or someone trips and falls,” says Jeff Reinig, senior vice president at Farmers Insurance.
Liability for injuries on your property is covered on both a homeowner’s and a landlord’s policy, Reinig says, but it’s even more important for landlords. “When you’re a homeowner, the chances of your guests suing you are low,” he says. “The chances of a renter’s guests suing are pretty high.”
Coverage for loss of rental income. If the house burns down or a tenant trashes the place and you have to make repairs, you’re not collecting any rent. “If you’re dependent on that rental income to pay the mortgage, you need that coverage,” Salvatore says.
Vacancy restrictions. The longer your house sits without a tenant, the more likely you are to run into restrictions. For example, Farmers Insurance won’t cover vandalism of a home if it’s been vacant for more than a month.
Renter’s insurance. As the landlord, your coverage will be only on the structure itself and your financial interest in it. Your tenant’s personal possessions won’t be covered under your policy. Many landlords require a tenant to buy renter’s insurance before a lease is signed. Spann points out a tenant will be eligible for premium discounts if he gets renter’s coverage from the same company that insures his car.