The day you rent it out, it stops being a home
Not to you — but to the insurance company. A rented property is a business asset, and a homeowners policy is not written for one.
Why a homeowners policy will not do the job
Homeowners policies are written on the assumption that you live there. Rent the place out and that assumption fails, and with it the coverage. Carriers handle this differently — some exclude the loss, some deny the claim outright, some cancel the policy when they find out — but none of them simply pay as though nothing changed.
Rental property is normally written on a dwelling policy instead. It looks similar from a distance and behaves differently in three ways that matter.
It covers the structure, not your belongings. Your tenant's furniture is their problem, which is why you want them carrying renters insurance. Anything of yours left in the property — appliances, a lawnmower, furnishings in a furnished rental — needs to be scheduled deliberately.
The liability is different. You are being covered as the owner of a property other people live in. That is a different exposure from being covered as someone who lives in their own house, and it is the part most worth getting right.
It can pay you rent. If a fire makes the unit uninhabitable, a homeowners policy would pay your hotel bill. A dwelling policy pays the rent you are no longer collecting while it is repaired. For most landlords that is the coverage that actually saves the year.
Dwelling policies come in narrower and broader forms, and the cheap ones are cheap for two specific reasons: they cover a short list of named causes rather than anything not excluded, and they pay depreciated value rather than replacement cost. On a twenty-year-old roof that difference is most of the claim. Ask which you are being quoted.
- The building itself, including what is attached to it
- Lost rental income while the property is uninhabitable
- Liability for injuries to tenants, guests and visitors
- Appliances and furnishings you own and leave in the property
- Other structures — detached garage, fencing, shed
- Your legal defense costs if a tenant's claim becomes a lawsuit
Where landlords get caught
Short-term rentals are usually excluded. Listing the place on Airbnb or VRBO is generally not the same risk as a twelve-month lease, and most standard landlord policies do not contemplate it. If you rent short-term, even seasonally down the shore, say so at the outset. There are carriers who write it and a great many who will decline the claim rather than the policy.
Vacancy quietly changes the coverage. Most policies restrict what they cover once a property has sat empty beyond a set period — often around 30 or 60 days. Vandalism, water damage and glass breakage are common casualties. Between tenants, during a renovation, or while a property is on the market, that clause is live. Tell us if a place is going to sit, and we will arrange for it.
Not requiring renters insurance from tenants. Your policy does not cover their belongings and they will assume it does. A lease clause requiring a renters policy costs you nothing, costs them very little, and means their damaged television is their carrier's conversation rather than an argument with you.
Underinsuring the rebuild. The right number is what it would cost to rebuild, which has little to do with what you paid or what it would sell for. On older New Jersey housing stock, bringing a rebuild up to current code can add substantially, and coverage for that is often a separate limit worth raising.
Stopping at the property's own liability limit. A serious injury claim at a rental can exceed it, and the rest is yours. A personal umbrella can usually be extended over rental properties you own — it is one of the least expensive things a landlord can do.
One more, outside the policy: your municipality may require rental registration and a periodic inspection before a tenant moves in. Worth confirming with the town rather than discovering later.
Landlord Insurance questions we hear a lot
I rent out one unit of a two-family I live in. Which policy is that?
Usually a homeowners policy written to reflect the rental unit, rather than a landlord policy, because you still occupy part of the building. The key is that the carrier knows. An owner-occupied two-family is a routine, insurable thing — an owner-occupied two-family the carrier believes is a single-family house is a claim problem waiting to happen. Tell us the arrangement and we will write it correctly.
Does my policy cover the tenant damaging the place?
Sudden and accidental damage generally yes — a tenant leaves a tap running and the bathroom floor goes, that is a water claim like any other. What is not covered is wear, neglect, and the slow deterioration of a property that has not been maintained. Deliberate damage by a tenant is sometimes covered and sometimes excluded depending on the form, which is a good reason to know which form you have before you need it. Your security deposit is the first line for the rest.
What is loss of rents coverage worth?
It replaces the rent while the property genuinely cannot be lived in after a covered loss, usually up to a limit expressed in months or as a percentage of the building coverage. If the mortgage on a rental is paid out of its rent, this is the coverage that keeps a fire from becoming a second problem. It does not cover a vacancy between tenants or a tenant who simply stops paying — that is a different product.
I am renting out my condo. Is this the same thing?
Related, but the association's master policy is still doing part of the work, so the policy sits differently. You need a form that reflects both the rental use and whatever the master policy leaves to you. Send us the master policy declarations along with the lease terms and we will sort out which piece belongs where.
I have four rentals. Should they be on one policy?
Often, yes — once you are past two or three properties a package can be cheaper and considerably easier to administer than separate policies renewing on separate dates. It also makes it simpler to run one umbrella across all of them. It is worth a conversation rather than a form; tell us what you own and we will lay out both options.