Are you considering renting out your house? Maybe you’re thinking that it as a way to make some extra cash or maybe you’re moving but don’t want to sell your home. Whatever your reason, there’s something crucial you need to know: you’ll need to change your homeowners insurance.

Client’s learn this lesson the hard way when they decide to rent out their home. They thought their regular homeowners policy would cover everything, but they were wrong! Let me tell you why you need different coverage and what kind of insurance you should get.

Why Your Current Home Insurance Policy Won’t Cover Your Correctly

When you rent out your home, whether it’s for a long time or just a few weekends, your insurance needs change. Here’s why:

1. Your tenants’ stuff isn’t covered: Your renters will bring their own belongings, and your policy will not cover their things.
2. You might lose rental income: If a covered loss happens to your property and you can’t rent it out, you could lose money. Having the correct policy will help protect you from this loss.
3. Insurance companies see more risk: When you’re not living in the home year-round, insurance companies think there’s a higher chance of something going wrong.

What Kind of Insurance Do You Need?

The type of insurance you need is called dwelling property insurance. It comes in different flavors: DP1, DP2, or DP3 policies. These policies are designed specifically for rental properties and can be customized to fit your needs.

Dwelling property insurance covers things like:

• The structure of your house
• Appliances and permanent fixtures
• Lost rental income if your property becomes uninhabitable due to a covered event
• Any liability that may occur at on the property

How It’s Different from Regular Homeowners Insurance

Your standard homeowners policy (usually called an HO3 or an HO5 policy) will not cover rental situations. Why? Because when you rent out your property, it becomes a business. Tenants might not take care of the house the same way you would, which increases the risk for insurance companies.

Here’s a personal example: When a client first rented out their vacation home, a pipe burst during a cold snap. Because they hadn’t updated their insurance, the damage was denied by the insurance company. It was a costly mistake that sadly taught them the importance of having the right policy in place.

When Might Your Current Policy Be Okay?

Some insurance companies might let you add an endorsement for occasional rentals. For example, if you’re only renting out your home for a few weekends a year, your current policy might cover it. But don’t assume – always check with your independent insurance broker-agent first!

When Do You Definitely Need Dwelling Property Insurance?

You’ll likely need a dwelling property policy if:

• You don’t live at the property
• You rent the property out
• You use the property for short-term rentals (like Airbnb or Vrbo)
• Your home has unique insurance needs (like an older roof) that makes a standard home insurance pricey

Be prepared to tell your independent insurance broker-agent how often you rent out the home, how much you charge, and how the property is used when it’s not being rented.

Short-Term Rentals Need Special Attention

If you’re thinking about getting into the vacation rental business, be aware that it’s not as simple as just listing your property on Airbnb. Standard homeowners insurance usually doesn’t cover short-term rentals except in very specific cases. You’ll likely need separate coverage, such as dwelling property insurance.

What About Your Tenants’ Belongings?

While some dwelling property insurance may cover your personal belongings left in the rental, it won’t cover your tenants’ stuff. It’s a good idea to encourage your tenants to get renters insurance (an HO4 policy) to protect their personal property. And, even require that they carry a renters policy and send you a copy of it each year at renewal.

The Cost of Dwelling Property Insurance

When it comes to the price of dwelling property insurance, there’s no one-size-fits-all answer. Just like homes, these policies come in all shapes and sizes. At Vargas & Vargas Insurance, we’ve seen quite a range. Some of our clients with basic DP1 policies pay as little as $700 a year, while others with comprehensive DP3 policies invest up to $5,000 annually.

Why such a big difference? Well, each policy is carefully tailored to fit the unique characteristics of the property it covers. Factors like the home’s location, size, age, and construction type and age of roof, plumbing, heating and wiring all play a role in determining the cost. Plus, the level of coverage you choose can significantly impact the price.

Remember, the cheapest option isn’t always the best. It’s about finding the right balance between cost and protection for your specific rental property. That’s where our expertise comes in handy – we can help you navigate these choices to find the best value for your situation.

Dwelling property insurance is competitively priced and covers many perils, including:

• Fire
• Wind and hail damage
• Tornadoes
• Lightning
• Falling trees that hit your house
• Burst or frozen pipes
• Lawsuits

However, always read your policy carefully to understand exactly what’s covered and what’s not.

The Bottom Line

Renting out your property can be a great way to earn extra income, but it’s crucial to have the right insurance in place. Don’t make the mistake I did – update your policy before you start renting!

At Vargas & Vargas Insurance, we understand that every rental situation is unique. Our team of experts can help you navigate the world of dwelling property insurance and find the best coverage for your needs. Whether you’re renting out a room or an entire house, for a weekend or a year, we’ve got you covered.

Don’t leave your property’s protection to chance. Give us a call at 617-298-0655, and let’s make sure your rental adventure is a safe and successful one!