Dear Insurance Adviser,
I am thinking of renting out my basement. Would this cause my home insurance rate to go up substantially? Is there any way of estimating how much my rate would increase?

— Jean

Dear Jean,
Good news! You can rent out your basement without jeopardizing your insurance coverage or even paying an extra premium. You can qualify for the same home insurance as long as you don’t have more than two roomers or boarders.

Here are some risk management tips.

  • Be sure to check with the city to make sure there are no local ordinances preventing you from legally renting out the basement. For example, a separate entryway may be required. Or, smoke detectors and a fire extinguisher may be necessary.
  • Second, make sure tenants understand that they are responsible for their own personal property because your policy won’t provide any coverage. The best solution for them is to have renters insurance. It not only covers their personal belongings, but also includes personal liability coverage in the event that they harm someone or something.
  • Third, spend a little money with an attorney and protect yourself with a good lease. In this case, keep in mind what they say about an ounce of prevention being worth a pound of cure!
  • And fourth: Raise your home insurance liability limits to at least $500,000, and get a supplemental umbrella policy for at least $1 million. If you already have an umbrella policy, consider raising it by an extra million dollars. If a tenant gets injured on your premises, you probably will get sued. This extra liability coverage, which will probably cost you $150 a year, will prove to be a real bargain in the event of a lawsuit.

Good luck!

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