You absolutely have insurance issues to consider when renting out your home. As you might have guessed, rental property owners have unique insurance needs. A standard homeowner’s policy isn’t appropriate for rental property, because:
- You don’t need to insure the contents of the house, unless you provide furnished accommodations;
- You need to be more concerned about liability issues; and
- You need to protect yourself against the loss of rental income. Your tenants may purchase renters insurance, but even if they do, it won’t provide any income coverage for you as the owner of the property.
Fortunately, there are policies designed especially to meet the needs of rental property owners. Most insurers who write commercial and personal insurance can sell a policy specifically for rental property. However, there can be variations among rental property policies. Characteristics such as the condition of the property and the age of the dwelling could also affect the type of policy that could be written by an agent. Thus, some policies would provide replacement cost coverage, while others might insure the property on an actual cash value basis due to condition. Some policies only provide coverage for one or two named perils (such as fire and lightning), while others provide much broader coverage. Your unique rental home situation will determine what insurance product can be offered.
A good rental property policy should provide the following:
- Broad coverage for the physical structure of the house on a named-peril or all-risk basis.
- Coverage for other structures located on the property (garages, sheds, etc.). This coverage is often limited to a percentage of the house coverage but usually can be increased if needed.
- Coverage for your property left on the premises (appliances, maintenance equipment, etc.). Many policies designed for rental properties provide a minimal amount of coverage. Check to make sure it is enough.
- Coverage for loss of use, if you lose rental income as a result of a covered peril. Many mortgage companies are now requiring that this coverage be included before providing a loan on a rental property. Without this coverage you will have to reach into your pocket to pay the continuing mortgage payments.
Contact your insurance agent to review your rental property coverage at least annually or if you are considering renting out your primary home which will result in a change of occupancy. Note: Failing to tell your agent of a change in this regard could void your coverage in the event of a claim. If you rent out your home, the policy needs to be re-written to an appropriate rental property policy.
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