Owning your house brings security and peace of mind, but owning a second home has the potential to bring supplemental income. In 2019, vacation rentals witnessed a 7% growth, with the overall revenue being $87.09 billion. Renting out your house to guests can be an easy way to make money but, as with any business, rental property also has risks that you should take precautions against.
You may already know about home insurance and renters insurance, as well as personal property coverage. But if you are considering renting out your house, it means you are starting a business, and in such a case, a standard home insurance will not suffice. Whether you rent out a room in your house or give guests access to the entire property, you need to find out more about and purchase rental property insurance.
Do I need insurance to rent out my home?
Yes, before renting out your home, you’re going to need insurance. The type of insurance depends on the length of time that you’ll be renting your home. Your home insurance company can help you determine what type of coverage you need, but here’s a general idea.
Short term rentals
For short-term rentals, like a weekend or a week-long stay, a homeowners or renters insurance policy might be enough coverage, as long as you let your insurance company know you are renting your home. However, some providers will require you to purchase an endorsement policy to extend your coverage.
If you are renting out a single room in your home, your existing homeowners insurance policy may offer enough coverage. But again, it depends on the length of the renter’s stay and the number of people in your home.
If you are renting your home for short amounts of time on a regular basis, that would essentially mean you are running a business. Homeowners and renters insurance do not cover business-related activity. So in this case, you would need to purchase a business insurance policy. Ask your insurance provider about purchasing a bed and breakfast or hotel policy.
For long-term rentals, the insurance requirements are different. If you are renting your home to the same people for six months or a year, you will need landlord insurance. Landlord policies, also called rental property insurance, offer more protection than homeowners insurance and generally cost about 25% more.
Keep in mind that rental home insurance does not provide coverage for your tenants’ belongings. They will need a renters insurance policy to protect their personal items while they are renting your home.
What is the difference between homeowners insurance and landlord insurance?
Homeowners insurance and landlord insurance share many similarities. Both types of insurance cover physical damage to the structure of your home. So if a fire or major storm damages the home, the losses are covered.
Landlord insurance and homeowners insurance also both cover liability and personal property coverage, but in different ways. Home insurance covers all of the homeowner’s personal belongings inside and outside their property. For landlord insurance, personal property coverage usually only applies to things that are available for tenant use, such as a washing machine or refrigerator. A renter’s luggage or clothing would not be covered.
There are also differences in liability coverage. Homeowners liability insurance covers the homeowner’s legal fees if someone injures themselves in the home or if they accidentally damage someone else’s property and get sued. For landlord insurance, liability coverage only applies to renter’s injuries while they are staying at the house.
The other main difference is that some rental property insurance covers loss of income if you are unable to rent out the home after a covered loss. For example, if a hurricane destroys your vacation home in Florida that you rent through Airbnb, your landlord insurance may reimburse you for any rental payments while you are fixing up the property.
Additional coverage for your renters
The coverages that your renters need will vary based on the type of rental you have. Renters staying in a short-term or vacation rental likely do not need to purchase any additional insurance. If they have homeowners insurance coverage or renters insurance on their primary residence, their personal property coverage will likely cover at least a percentage of their personal property while on vacation.
However, if your guest is living in your rental home long-term, they may want to consider a renters insurance policy. Your landlord insurance does not provide any coverage for personal property owned by the tenant, and your tenant also likely needs liability coverage of their own in case they are found negligent for guest injuries or damage to someone else’s property. Thankfully, renters insurance is relatively inexpensive, costing an average of just $179 per year, according to the Insurance Information Institute (III).
Frequently asked questions
Do I need rental property insurance if I have homeowners insurance?
The short answer is—it depends. If you rent your home for short periods of time, your homeowners insurance policy might provide enough coverage. However, you may need to raise your policy limits or purchase an endorsement policy for added coverage. If you rent your home to the same person or group for long periods of time—think six months or longer—you’ll need to get rental property insurance. If you’re not sure what type of insurance you need, get a recommendation from your insurance company.
How much does landlord insurance cost?
According to the Insurance Information Institute (III), landlord insurance costs about 25% more on average than homeowners insurance. Like all types of insurance, the average rate varies by state, but expect to pay about 25% more than your current home insurance premium. Landlord insurance isn’t always cheap, but it costs more than homeowners insurance because it offers more protection.
If I have insurance through the rental sharing company, is that enough?
Airbnb and other rental sharing companies usually offer some type of insurance for people who rent their home on the platform. Some people rely on that insurance alone, rather than purchasing their own policy. However, rental company insurance policies don’t cover everything. Making a claim through a company like Airbnb is often much more difficult than filing a claim through your own insurance company. Also, rental company policies typically don’t cover loss of income, which landlord insurance does cover. Overall, it may be best to spend the extra money and purchase a full rental property policy through your insurance company.