Will My Homeowners Insurance Go Up if I Rent My House?

When a homeowner decides to rent out their property, their insurance coverage needs to change. Standard homeowners insurance policies are not sufficient for rental properties, and premiums are likely to increase. This shift occurs because renting out a home introduces new risks that differ from an owner-occupied residence. Updating coverage is essential for financial protection.

Changes in Insurable Risk

Transitioning a home from owner-occupied to a rental property fundamentally alters its risk profile in the eyes of insurers. A standard homeowners policy is designed for a property where the owner resides, protecting against perils like fire, theft, and certain liabilities. When tenants occupy the property, insurers perceive an increased potential for property damage and liability claims.

The presence of tenants introduces new exposures, such as potential damage caused by their actions, accidental fires, or intentional mischief. Liability exposure increases significantly because the property owner is now responsible for the safety of tenants and their guests. Any injury occurring on the premises could lead to a lawsuit against the landlord, highlighting a different scale of risk compared to personal occupancy. The property shifts from a personal residence risk to a business or investment property risk, necessitating a different type of insurance.

Required Insurance Coverage

When converting a residential property into a rental, homeowners need to transition from a standard homeowners policy to a landlord insurance policy, also known as rental dwelling insurance. This specialized coverage protects the owner’s financial interests in a non-owner-occupied property. Landlord insurance includes several key components tailored to rental situations.

Dwelling coverage protects the physical structure of the rental property from perils like fire, wind, hail, and other covered losses, including other structures on the property, such as detached garages or sheds. Landlord liability coverage safeguards the owner against claims arising from injuries sustained by tenants or their guests on the property. This helps cover medical costs, legal fees, and settlements if the landlord is found responsible.

Landlord insurance also includes loss of rent or fair rental value coverage. This protects the landlord’s income if the property becomes uninhabitable due to a covered event, such as a fire or storm, and tenants must temporarily vacate. This coverage reimburses for lost rental income until repairs are complete, often for a period up to 12 months. It is crucial to understand that landlord insurance does not cover the tenant’s personal belongings or their personal liability; tenants are responsible for obtaining their own renters insurance for these protections.

Factors Affecting Premiums

Several factors influence the cost of landlord insurance premiums, which are typically higher than standard homeowners insurance due to increased risks. The property’s characteristics, such as age, construction type, and overall condition, play a significant role, as older buildings or those with certain materials may be considered riskier.

The property’s location is another determinant, with areas prone to natural disasters or higher crime rates generally incurring greater premiums. The coverage limits selected and the deductible amount also directly impact the cost; higher coverage limits and lower deductibles lead to increased premiums. The type of rental arrangement can also affect premiums, as short-term rentals like those through platforms such as Airbnb may be viewed differently than long-term leases.

The homeowner’s claims history, both for the property and personally, can influence rates, with a history of frequent claims potentially leading to higher premiums. Safety and security features, such as alarm systems or sprinkler systems, can sometimes lead to discounts. The property’s occupancy status, such as whether it is vacant between tenants, can also affect insurance needs and costs.

Steps to Update Your Policy

Updating your insurance policy when renting out your home begins with contacting your current insurer. Informing them about the change in occupancy is necessary, as continuing with a standard homeowners policy for a rental property could lead to denied claims. The insurer will require specific details to assess the new risk, such as planned rental dates and general property information.

Gathering quotes from multiple insurance providers specializing in landlord policies is advisable to ensure competitive pricing and comprehensive coverage. While your current insurer may offer a landlord policy, exploring options from various providers can help you find the most suitable policy for your needs. Once you receive policy proposals, carefully review the terms, conditions, exclusions, and coverage limits to understand what is covered.

Ensure the new landlord policy is in effect before tenants move into the property to avoid any gaps in coverage. This proactive step helps protect your investment from the moment it becomes a rental.