More homeowners are considering renting out their homes in order to wait out the market. Whether you can’t sell or don’t want to, renting out your home can be a smart and sensible solution, especially from a financial standpoint. However, there is one key factor to keep in mind as you move forward: insurance.
Your current homeowner’s policy likely won’t cover damage caused to your home by tenants. A home policy assumes that you – the homeowner – will be living there, and therefore will only cover serious damages caused while your family lives there. It’s always best to call your insurance company and determine exactly what is covered under your policy, but you can expect that it won’t cover tenants living in your home.
In an ideal world, small damages caused by tenants are covered by a security deposit. Tenants will put down a specified amount of money, usually the same as the first month’s rent, and this money can be used to make the repairs when they move out. The problem is that a security deposit will only cover minor repairs like holes in the wall or carpet cleaning. If something major happens, such as water damage or a fire, you will need insurance to cover these costs.
This is where landlord insurance, sometimes called rental home insurance, comes into play.
A basic rental home insurance policy would cover you if your tenants were to cause major damage in the home, loss of rental income due to a covered loss, and damage to interior property if it is owned by the landlord policy. Tenants would need their own policy in order to have coverage for their belongings. It is smart to require tenants to carry their own insurance to not only cover their own property but also to protect you and them against situations where they are negligent for some sort of damage or injury.
Being a landlord has its ups and downs, but by being proactive and taking out the right insurance coverage, you can protect yourself during times.