If your kids have moved out and you have one or more rooms sitting empty, you may be thinking about renting out the extra space to generate additional income. Before you do that, check with your homeowners insurance company to find out if you’ll need to adjust your coverage.
You May Be Able to Keep and Modify Your Current Homeowners Insurance Policy
Each insurance company has its own rules. It may be possible to keep your existing policy if you take in a tenant. Your homeowners insurance company may allow you to rent out a room in your home, as long as you add a rider or an endorsement to your current policy to cover your tenant. Your insurance company may place a limit on the number of tenants you may have.
Renting out a room in your house can increase the risk that the insurance company will receive a claim for property damage and/or liability. Your premiums may therefore go up.
You and/or the Tenant May Have to Purchase Additional Insurance
If you plan to take in a long-term tenant, you may be required to purchase landlord insurance. It can provide liability and property coverage, cover medical and legal fees associated with a claim, and compensate you for lost rental income if the house becomes damaged and uninhabitable. Landlord insurance may cost more than your current homeowners insurance policy, but you may be able to factor the cost of insurance into the amount you charge for rent.
A landlord insurance policy won’t cover the tenant’s possessions if they get damaged or destroyed by a covered peril. Renters insurance will cover your tenant’s personal belongings and will also provide liability protection in case the tenant does something that causes property damage and/or injuries to others.
If you plan to rent out a room on a short-term basis to a series of different tenants, your insurance company will probably consider that a business activity. Since a standard homeowners insurance policy doesn’t cover business activities conducted in a house, you may need to purchase a business insurance policy.
Talk to Your Insurance Company Before You Take in a Tenant
If you rent out a room in your house, the tenant causes damage and you file a claim through your homeowners insurance company, it may or may not be covered, depending on your specific policy. If you don’t inform the insurance company that you have a tenant, and then you try to file a claim, it may automatically be denied. Your policy may even be canceled. Discuss these issues with your current homeowners insurance company before you rent out a room so you can make sure that you have the right coverage and avoid any unpleasant surprises.