If I rent out my basement. Does my homeowners policy cover my tenant?

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If I rent out my basement. Does my homeowners policy cover my tenant?

The good news…you probably can rent your basement apartment without jeopardizing your homeowners insurance or even having to pay a higher premium, as long as you continue to live in the home and don’t rent to more than two roomers or boarders.  But before you place that ad, you should check with the city to make sure that you abide by any required local ordinances, such as having a separate entryway for your tenants or smoke and carbon monoxide detectors.

Your current homeowners policy covers the entire structure, including the area that is rented, your property (furniture, clothing, electronics, appliances, etc.,) and liability coverage in case someone is injured while at your home or their property is damaged up to the policy limits.  It does not cover your tenant’s personal property and belongings.  And, since they are occupants of the home, they are not eligible to file liability claims against you if they are injured due to your negligence.  Tenants are completely left out of the home’s insurance coverage.  To remedy this, all renters need to obtain their own renter’s insurance policy and it is good practice to require proof of renter’s insurance before a lease is signed.

What does a renter’s insurance policy provide?

Renter’s insurance covers a tenant’s personal belongings, but also includes personal liability coverage and loss of use, allowing the tenant to find temporary lodging in case their rental is uninhabitable.  This takes the financial threat off the renter.  The structure or home is not the tenant’s responsibility, but everything within their rented space or stored on your property are.

Renters insurance typically provides coverage for the following situations:

  • Personal property– furniture, computer equipment, electronics, clothing, and other valuables
  • Personal liability –if someone is hurt or their personal property damaged
  • Damage to your rented home caused by the renter’s negligence – a good example would be leaving your iron on and causing a fire.

Add an Umbrella Policy and raise your Homeowners limits

The typical homeowner insurance policy includes four types of essential coverages:

  • Liability insurance – covers you against lawsuits or claims from others for bodily injury or damage to property caused by your negligence or that of your covered family member or pet
  • Personal property – pays for your losses up to the limits of your policy when your personal belongings are stolen or destroyed by various covered disasters
  • Structural insurance – covers the cost to repair/rebuild your house damaged by various covered disasters, and often includes other detached structures on your property like garages and storage sheds.
  • Additional living expenses – are paid up to the limits of your policy during the repair/rebuild process if you must live away from an uninhabitable home damaged by a covered disaster. If part of your home is rented out and you lose rental revenue because damage renders it uninhabitable, this coverage also reimburses for lost rent.

Having extra income is great.  But a tenant living in your home may increase your own risks.  It is recommended that you increase your homeowners liability limits to $500,000.  We also recommend that you buy an umbrella policy with a limit of at least one million.  This extra policy will cost less than fifty cents a day and will protect you against any added liabilities a tenant could cause.

If you’re ready to take on a tenant in your home, talk to the agents at Foundation Insurance Group, serving Virginia and the greater Louisville, Kentucky metro area to make sure both you and your renter have the right insurance to protect your property.  Foundation Insurance Group agents are always happy to review your homeowners insurance policy and discuss your options to limit your exposures.  Contact us today.

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