It depends on how
long you intend to lease the property, but in most cases, homeowners insurance
coverage won't be an appropriate substitute for rental property insurance. The
presence of tenants in a rental property engenders unique risks that won't be
covered by homeowners insurance, particularly if you plan to lease a property
for an extended period of time.
The type of
insurance you need will depend on how often you rent out your home and the
duration of your tenants' stays. These distinctions can be divided into three
categories: Long-term renting, infrequent short-term renting, and frequent
short-term renting.
Long-term renting: If you have an
investment property, vacation home, or second home that you intend to rent to a
single person, couple, or family for a long period of time, you will need rental
property insurance. A long period of time generally means six months or longer.
The same is true if you are renting your primary residence for a large chunk of
the year. Compared to being a live-in homeowner, having a rental house
increases your exposure to certain risks, such as liability issues relating to
tenants and their guests. Your insurer won't cover these risks under a homeowners
policy unless you are actually residing in your home.
Infrequent
short-term renting: If you only intend to rent out your property for a short period of
time, such as a week or a few weekends, your homeowner's insurance may indeed
cover you. This coverage may come standard in your policy if you give
appropriate notice to your insurer, extending the usual benefits of homeowners
insurance to periods in which you are temporarily renting your property. If it
doesn't come standard, you may be able to buy an endorsement from your insurer
that extends your coverage to temporary rentals. Before you commit to
short-term renting, you should contact your insurer to make sure it is notified
and that you understand your coverage.
Frequent short-term
renting: If you're planning to rent out a property regularly to a variety of
people for short
periods of time, your property may be considered a business, and
neither homeowners insurance nor rental property insurance will cover you.
Instead, you will need to purchase some form of commercial property insurance
to cover the associated risks. For example, Progressive provides
"home share insurance," also called vacation rental insurance, for
people who rent out their homes or rooms through a service provider such as
Airbnb or VRBO. These policies include unique features such as bed bug and
identity theft coverage.
You should be aware
that although service providers themselves may offer a limited form of
protection, it usually won't be as comprehensive as the home share insurance
offered by an independent insurer. For instance, Airbnb has a host guarantee
policy covering property damage to your home up to $1 million for every
listing, but the policy includes limitations that traditional insurance won't.
One limitation is that the request for coverage must be submitted within 14
days or before the next guest checks in, giving you limited time to take action
and assure reimbursement.
How much does
rental property insurance cost?
Rental property
insurance is approximately 25% more expensive than an equivalent homeowners
insurance policy. Given that the nationwide average
cost of homeowners insurance is $1,445, you can expect the
nationwide average for rental property insurance to be approximately $1,800.
The higher rates reflect additional risks posed to a landlord over a live-in
homeowner, such as the potential loss of rental income and the injury liability
posed by tenants and their guests.
If you're
interested in rental property insurance, policies are offered by major
homeowners insurance companies such as Allstate and State Farm, so you can
easily shop for and compare rental property insurance quotes online.
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Jason Gwerder
Monday, 11 October 2021
