Planning to Rent Out Your Home – Landlord Insurance or Homeowners Insurance? (Part 1)

Planning to Rent Out Your Home – Landlord Insurance or Homeowners Insurance? (Part 1)

Purchasing a second home in the near future and plan to rent it out to others? Plan to rent out the spare rooms in your home via Airbnb? If so, do you know what kind of insurance policy you might need to protect your rented-out home if you only plan to rent it out sporadically? Would a homeowners policy be a better fit, or would having landlord insurance be the best course of action?

In this article, we’ll take a look at a number of factors to consider for adequately insuring your home when you rent it out.

Length of a Rental Agreement

If you’ve decided to supplement your income by renting out your home for a single occasion—whether it’s a well-attended sporting event or convention—then your pre-existing homeowners policy may provide protection in the event of injuries or property damage. However, you may find that trying to purchase a homeowners insurance policy may be excluded provided that you don’t live in the house.

On the other hand, if you’re planning on renting out your second home on a regular, ongoing basis, then it would be in your best interest to purchase a landlord insurance policy because a homeowners policy may have exclusions in its policy that could come to affect you should a claim be made against you on the property.

Some differences between homeowners and landlord policies include:

• Liability coverage:Landlord insurance typically only provides liability coverage relating directly to the rented home/premises. If a tenant is injured in the home you’re renting out and you are found legally responsible (ex. a handrail cracks on the stairs, leading to a fall), the liability coverage on your landlord policy covers the subsequent medical bills and/or legal fees. In contrast, the liability portion of your homeowners policy covers you and your family that resides in the home, whether the accident happens in your home or not.
• Personal property coverage: Homeowners insurance may help protect many kinds of belongings on your property (e.g. furniture, clothing and computers); Landlord insurance usually provides coverage only for items used to service the rented property, such as a snowblower or lawn mower that you store on site for maintenance.

Contacting an insurance advisor  can help determine your options in regards to state laws and participating insurers.

Looking into Landlord Insurance

Once you’ve made the decision to be a landlord, consult your insurer about a special type landlord insurance sometimes referred to as a dwelling fire policy (or a special perils policy). 

A typical landlord insurance policy typically covers:

• the house itself
• unattached structures on the property (such as a gazebo, shed, etc.)
• the owner’s possessions (but NOT the tenant’s possessions)
• lost rental income if the house is damaged and/or determined to be uninhabitable,
• liability protection for the owner in case of an injury or a lawsuit

Policies vary, however, so be sure to go over the fine print with your agent/broker/advisor. If you notice that an item isn’t included (e.g.lost rental income), you may be able to add the coverage as a floater [ADD LINK TO “What is a Floater”] for a relatively-small additional amount.

While a standard homeowners policy offers a broad range of coverage, landlord coverage isn’t as far-reaching, leaving the landlord to make up the difference in coverage by purchasing different levels of coverage. There are several levels for a dwelling fire coverage—named DP-1, DP-2, and DP-3 (the higher the number, the better the coverage). Still, a basic landlord insurance policy has some coverage for wind, theft, ice, and fire damages should your budget be lower at first.

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This concludes part 1 of “Planning to Rent Out Your Home – Homeowners or Landlord Insurance?” If you’ve decided to own an investment property, you owe it to you and your family to consult an insurance advisor to determine the best coverage for available at an affordable price.