insurance

Renting out a home? Get the right insurance

Highlights
  • Insurance needs differ for a home you rent out from the one you live in.
  • Educate yourself on different types of landlord's insurance.
  • Remind tenants of what their insurance needs are.

Are you an "accidental landlord"? There are more of them these days.

They are the people who never intended to be landlords, but maybe they bought a new house and couldn't sell the old one. So they're renting out the old one.

Some are those who bought a vacation home, but find they must bring in short-term tenants to cover higher-than-expected costs.

Listen up, virgin landlords: You need to revisit your homeowners insurance policy now. In all likelihood, your existing policy probably doesn't cut it anymore. Most cover owner-occupied homes, and yours no longer qualifies.

Your policy review should give you the answer to three questions: One, do you need landlord's insurance? Two, what are your options? Finally, there's the all-important question of cost.

When you need landlords insurance

If you're only taking in renters a few weeks per year, your homeowners policy will typically provide coverage. But when rentals become more than occasional, your homeowners policy won't suffice.

"When you live in the same home as your tenant, you can endorse your homeowners policy with 'unit rented to others' coverage for that landlord-tenant situation," says Jason D. Hoffman, an independent insurance agent at Arbolino Agency in Middletown, N.Y. "But when you don't live in the same home as your tenant or you own a secondary home that you regularly rent out, you need a separate policy."

When does occasional rental of a second home transform to one that requires separate coverage? "It depends on the insurance company," says Bill Mills, vice president of Strategic Insurance Agencies Group of North Carolina, in Jacksonville, N.C. "You have to make sure the company will even allow short-term rentals," Mills says. "If it does, I typically look at the four-week mark."

Why not stick with your original homeowners policy? It's risky because any claims you make may not be covered. "The homeowner's insurance company doesn't consider that the home's being rented out when it issues your policy," says Hoffman. "If it's not aware of the rental, it can deny coverage if something does happen. It's better to let your insurer know you're renting to others, even if it's for a couple of weeks a year."

Know what type of landlords insurance you need

Policies for rental units have various names depending on the company. But they generally are referred to as dwelling policies, and fall into three categories: DP-1, DP-2 and DP-3.

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"A DP-1 policy is basic and covers simple things like fire and vandalism," says Mark Carrasquillo, an account executive with insurance broker E.G. Bowman Co. in New York City. A DP-2 policy is broader. "It covers named perils like damage from a windstorm, hail, fire or vandalism," Carrasquillo says. Most even have a provision for collision -- as in, if a car hits your house.

"A DP-3 policy is a 'special form' or an 'open peril' policy," says Carrasquillo. "Unless a peril is specifically excluded, it's covered."

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