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Home Insurance For Your Rental Unit

February 24, 2014

home insurance for rental unitWhether you are purchasing a home as an income property or moving out of your currently owned home and having a tenant move in, it’s important to know that there are different aspects to insuring a home inhabited by a tenant. You’ll need a different type of policy to properly protect yourself from the unique risks a rental property represents.

Differences Between A Residence and a Rental

A home where you are the primary resident can be covered under a homeowner’s insurance policy. These policies are designed to cover the structure, the contents, and the liability that comes with being a homeowner. They are rated based on the understanding that you, as the owner, are living in and caring for the property, and that the contents of the home belong to you.

A rental property carries some different risks. As the owner, you are not there every day to see that everything is being maintained and cared for properly. The contents of the home do not belong to you, but instead to the renter. There are two different areas of liability – yours as the owner of the property, and the liability of the renter living in the property. These differences mean that the same home will require a different insurance policy.

What a Rental Policy Covers

A policy for an income property covers some of the same things as a homeowner’s policy, while other things are different. The policy will continue to cover the structure itself and other structures on the property against all included perils. It will also continue to offer liability coverage for the owners of the property.

Contents coverage is one of the major areas where this type of policy differs from a homeowner’s policy. A policy for a rental property offers only a minimal amount of contents coverage, based on the assumption that the majority of the contents will belong to the tenant and not the owner. Some coverage is available for items such as appliances and other items you may provide to your tenants. If you are renting a furnished property, you should discuss increasing the contents coverage on your policy with your insurance company.

Your Liability as A Landlord

If you are renting out an income property, you carry a certain amount of liability that does not exist in the same manner on your own residence. You are responsible for keeping safe and healthy living conditions in any home you rent out. You can be held liable for injuries on the premises that can be traced to any negligence on your part, even unknowing negligence.

Liability coverage on a landlord’s insurance policy is in place to protect you in cases where you can be found to be financially responsible for injuries or damages. It will help to cover costs involved in lawsuits and pay in case of a judgment against you. It’s a good idea to discuss the level of liability coverage you are currently carrying with your insurance agent to determine whether a higher limit would better protect you.

Coverage for Renters

As the landlord, you are responsible for keeping an insurance policy in force to cover the home itself and your own liability. You are not responsible for covering your tenants’ personal property. Tenant’s insurance, or renter’s insurance, is a policy available to tenants in order to provide coverage for their property.

A tenant’s insurance policy also provides the renter with their own liability coverage, which can extend to potential damage they might do to a property, or to other liability issues such as dogs. Requesting that your tenants carry their own insurance policy can help to protect you from damages and lawsuits stemming from the actions of your tenants as well as providing the tenant with coverage for their personal property. Read more about tenants insurance to see why your renters should carry it.

Changing Over To a Landlord Policy

If you already own the home in question, and need to change the insurance policy to cover the property as a rental rather than an owner-occupied residence, you should contact your insurance company. Your previous homeowner’s policy will need to be cancelled and replaced with a new policy that covers the property appropriately for its new status as a rental.

This is a good time to shop around for the best rate on your income property insurance policy.

  • Joobs

    We have a semi detached house with 3 rental units, each with its own boiler. My insurance broker tells me that if a problem with one of the boilers caused a fire, we would not be covered. He’s trying to sell us a separate Boiler & Machinery equipment breakdown policy, but this policy describes industrial steam boilers and commercial HVAC systems for buildings, not small residential boilers. Is it typical for residential furnace or boiler problems to be excluded on small residential rental units?? I don’t see this exclusion detailed in our policy, but am I missing something?

  • http://www.insurancehotline.com/ InsuranceHotline.com

    You should get a second opinion as each insurance company has their own rules.

  • Roberta Biondic

    My daughter purchased a home, which she will be sharing with 3 other girls. Does she get Homeowner’s insurance or a Rental Policy?

  • InsuranceHotline

    your daughter should speak with her insurance broker. She will likely have to buy a homeowners policy since she owns the home and her roommates may have to buy rental coverage if they don’t own the home.