Do You Need to Change Homeowner's Insurance If You Rent Your House Out?

Written by James Hirby | Fact checked by The Law Dictionary staff |  

Turning your former family home into a rental property may offer some real financial benefits. If you and your spouse plan on retiring to a warmer climate but don't want to bother with selling your old home, you may be able to earn some extra spending money by offering it as a rental. Likewise, you may wish to keep it in the family and rent it out to your children or relatives.

Regardless of your reasons for renting out your former family home, you'll need to make some adjustments before leaving it in the hands of its new tenants. First, you'll need to remove all of your personal possessions and valuables from the home. You'll also need to remove any obvious fire hazards and ensure that its smoke alarm and carbon monoxide detection system function properly. If you choose to leave the washing machine and dryer in your home, consider installing coin-operated locks on them to prevent your tenants from running up your water bill. Alternatively, you could simply take your name off all of the home's utility bills.

You'll also need to change your homeowner's insurance policy. Insuring a rental property isn't necessarily more expensive than insuring a private home. In fact, a rental property that carries "house only" insurance may actually be cheaper to insure than a standard family home. This is because such a rental-home policy doesn't cover damage to the home's interior furnishings or the loss or theft of any valuable items being stored on the premises.

Rental-home policies merely cover damage to the structure of the house itself as well as any problems that arise with its internal wiring and piping. You may be able to reduce the cost of your new rental-property policy by requiring your tenants to purchase renter's insurance to cover any damages to their personal belongings.

Most homeowner's insurance policies are designed to terminate in the event that the home becomes a rental property. If you fail to change your old homeowner's policy into a rental policy before your new tenants move in, you'll effectively be without coverage of any kind. If you try to make a claim on damages sustained while your home is occupied by rent-paying tenants, your insurance company will deny your claim outright and will declare your policy to be void. You'll need to pay for any necessary repairs to your home out of your own pocket.

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