As the St. Pete real estate market continues to boom, we’re seeing more and more people buying newer, nicer, and bigger homes. But we’re also seeing many of these people choosing to rent their previous homes out. From a financial point of view, this may make a lot of sense. Especially if your rental cost exceeds the home expenses, such as a mortgage, taxes, insurance, and maintenance. However, if you neglect to change your insurance from a homeowners policy to a rental dwelling insurance policy you could have issues if you ever have a claim.
If you live in a condo, most of the time you can resolve these rental issues by just adding an endorsement (Unit Owners Rental to Others HO 17 33). However, if you live in a single-family dwelling or townhome and are insured by a standard HO3 homeowners’ policy you just might have issues if/when you decide to rent. After a detailed review of some standard and non-standard Homeowners policies we found 6 major issues if you decide to not rewrite your Homeowners (HO3) policy to a rental dwelling insurance policy (DP3).
1. Material Misrepresentation
First of all, if you don’t reveal to the insurance company that you are renting your dwelling you may be committing “material misrepresentation.” Many insurance applications ask you whether or not the house will be rented on a short- or long-term basis. If you answer no and turn around and rent the house out the insurer may be able to decline a claim based on that material misrepresentation.
2. Business Liability Exclusion
Second on our list is the business liability exclusion. Underneath the standard HO3 homeowners’ policy liability exclusions (Section II – Exclusions E.2.c.) is a “Business” exclusion. The exclusion sates that the policy does NOT cover, “bodily injury or property damage arising out of the rental or holding for rental of any part of any premises by an insured.” However, the exclusion goes on to give back coverage if the dwelling is only used for an “occasional basis.” This means that renting your house out for a weekend may be alright. However, if you plan to rent the house out for a longer-term basis (i.e. a few months or a year), you’re probably not going to have any liability coverage.
3. Home Share Exclusion
Another thing that many homeowners are doing nowadays is renting parts of their homes out on websites such as Airbnb. A standard HO3 homeowners’ policy is typically okay with this type of risk as long as you have less than 2 boarders. However, some Florida based insurance companies are not so fond of this type of risk. For example, Florida Peninsula added a liability exclusion for “Home Sharing/Bed and Breakfast.” If you plan to rent out part of your home in Florida, it’s always best to contact your agent to see if your carrier has any issues.
4. Rented Detached Structures
Most homeowners provide coverage for Other Structures that are set apart from the dwelling by “clear space” under Coverage B. Other Structures typically include but are not limited to detached garages, sheds, & garage apartments. However, if you read the fine print of your homeowners’ policy you’ll come across this exclusion: “we do not cover other structures rented or held for rental to any person not a tenant of the dwelling, unless used solely as a private garage.” This means if you rent out your detached garage apartment and that garage apartment is damaged/destroyed by fire, lighting, wind, hail, etc. you will not have any coverage underneath your Homeowners policy. If this is something you want to do, some carriers are willing to offer an endorsement called HO 04 40 – Structures Rented to Others, which eliminates the above-mentioned exclusion.
5. Landlord Furnishing
Next on our list is your furnishings if you’re a landlord. The issue can be found under the Property Not Covered section of the Contents coverage (Section 1 – Property Coverages, C.4.g). The policy states that, “property in an apartment regularly rented or held for rental to others by an insured” is specifically excluded. However, the policy does give back $2,500 of coverage under the Additional Coverages section (Section 1 – Property Coverages, E.10). But the $2,500 give back is limited to appliances, carpeting, and other household furnishings.
6. Contents Stolen by Theft
Last on our list of issues is coverage for your contents if stolen by your tenant. In the standard Homeowners policy your contents are covered on a named perils basis. This means the type of loss has to specifically be listed in the policy to be covered. Luckily theft is included. However, if you look at the definition (Section 1 – Perils Insured Against, B.9.b.3.) you’ll see a big issue. A theft loss caused from “part of a residence premises rented by an insured to someone other than another insured” is specifically excluded. This means if your tenant steals your TV & clothes, you’ll be forced to pay that loss out of pocket!
As you can see there are many issues if you decide to rent your current home out before making changes to your insurance coverage. If/when you plan to rent your home out, we always recommend contacting your insurance agent here at Insurance Resources. Your agent will be able to guide you on your options for landlord/rental dwelling insurance. If you have any questions, please contact our office at (727)345-0242. You can also email the author of this blog and Insurance Resources agent, Brian Ford, CPCU, CIC at [email protected].