3 Things to Know Before You Rent Your Home

Have you been considering renting out your home? With the rise of what many are calling the "sharing economy" and the return of the real estate market, many homeowners are considering opening their doors to short term renters or becoming landlords. If you are considering joining those ranks, here are 3 things to consider before you let someone into your home or a property you purchase.

HOMEOWNERS INSURANCE IS ONLY FOR OWNER OCCUPANTS

Under most homeowners insurance policies, the policy specifically defines what is called the “residence premises.” For example, The Hartford’s HO3 special policy form reads:

Under most homeowners insurance policies, the policy specifically defines what is called the “residence premises.” For example, The Hartford’s HO3 special policy form reads:

Residence Premises means:

a. The one family dwelling, other structures, and grounds; or

b. That part of any other building;

where you reside and which is shown as the residence premises in the declaration.

Coverage for damage to your property must occur at the residence premises. Therefore, if someone else is occupying the home, coverage for a loss would very likely be denied because you are not residing in the home. This can come into play in many different scenarios.

  • You temporarily rent your home through a site such as AirBnB
  • You rent your home and move into another
  • You let a child live in a home you own
  • You move into your deceased parent’s home and maintain their homeowners insurance

 

ARE YOU A TENANT WANTING TO SUBLEASE YOUR APARTMENT ON AIRBNB?

AirBnB is a website that allows people to rent out their homes to people on a short term basis and acts as a travel broker to arrange payments and coordinate the stay. Effectively, it allows people to use their property as a hotel. And at up to a couple hundred dollars per night, a lot of people are interested in the potentially serious extra money. Many of those people most interest in subleasing their living space to earn some extra money are tenants of apartments or condos.

However, if you are a tenant, most standard leases include language that prohibits you from subleasing your unit. If you do, you could find yourself with an eviction notice and a demand for all of the sub-leased rent you collected. A tenant in New York received that exact situation not too long ago. See the article, Landlord Busts Artist for Using Her Rent-Stabilized Tribeca Loft as AirBnB Rental.

 

DO YOU HAVE ENOUGH LIABILITY COVERAGE?

Most homeowners maintain $100,000 or $300,000 worth of liability coverage on their homeowners insurance. However, if you wind up becoming a landlord with one or multiple properties, you should strongly consider adding a personal liability umbrella policy. A liability umbrella policy adds additional liability protection in increments of $1 million beyond the underlying liability limits of all of your personal liability insurance policies. For example, if you had the following policies:

  • Homeowners liability: $500,000
  • Personal auto Liability: $250,000/ $500,000/ $100,000
  • Dwelling fire (rental property) liability: $500,000

The liability umbrella could add $1 million or more of additional liability protection above the underlying limits. Below is an example of how an umbrella could come into play.

You are coming home late one evening, exhausted from a long day, when your phone rings as you approach an intersection. You look down to answer. As you do, the light turns red. Distracted and tired, you accidentally head into the intersection and strike a car now coming through with the right of way.

The person you hit breaks his leg in 3 places, has broken ribs, and a punctured lung. He is 43 years old, the sole provider for his family, and makes $130,000 per year. Because of the severity of his injuries, he is unable to work for almost a year.

His hospital bills alone due to the long stay in the hospital total over $200,000. Due to the fact that he is unable to provide for his family and the pain and suffering he endured, he is awarded $300,000. Your auto policy caps out at the $250,000 per person limit, leaving you with a judgement of $250,000 against you.

If you have a $1 million liability umbrella, it would pay this additional $250,000 or up to its limit. Without it, you would personally have to pay this $250,000 and would put your home, rental property, and other hard earned assets in jeopardy.


So if you find yourself in one of these situations above, we strongly recommend that you consult with your agent. Insurance guidelines and policies are very complicated when multiple tenants and occupants become involved. So before you decide to rent out your home, be sure to give us a call.