What You Need to Know About Landlord Insurance
- Nov 14, 2016
Financial advisors will tell you that the best way to develop a strong portfolio is to have a consistent source of passive income. One popular form of passive income is to become a landlord and either rent out an investment property or a room in your home. It’s a growing form of supplemental income, especially as rental costs continue to climb in most cities across North America. If you do decide to rent out your home in any capacity, it is important that you understand how to protect yourself from the risks associated with having renters staying on your property.
Is Homeowners Insurance Enough?
Most homeowners insurance plans cover owner-occupied single family residences. When you rent out a home, you may no longer meet this definition which can cause some of your coverage to be voided. This is all contingent on how your insurance agent draws the line between a personal home and a commercial one. Insurance becomes substantially more complicated and often more expensive when it is considered a place of business.
This is not to say that if you have a friend staying for a few days that they will void your homeowners insurance. Most policies will cover short rentals, especially if they are infrequent. Never assume coverage. Even if you decide to rent out your home one night a week, it is best to call your agent to confirm that you will be covered.
What homeowners must understand is that when you have different people living in a home this, it increases the probability of property damage. Tenants usually do not take care of the property as well as owners, and often fail to report maintenance needs. Also in the case of a burst pipe, they may not be aware of emergency shut offs which can lead to greater damage. Furthermore, when you have more people in a dwelling, there is also an increase the potential for injuries on the property.
What is Landlord Insurance?
The purpose of landlord insurance is to protect your homeowners insurance from becoming void as well as providing an additional level of protection for your home.
Landlord Insurance typically covers various items in the homeowner’s possession (helpful if you are renting out a furnished room/home), lost rent pay, and limited liability coverage. However, there is no set list of what is and is not covered, so if you are looking to be covered for a specific risk consult with a professional. Also, make it clear to your renter that they should
purchase their own renters insurance to protect their possessions in the case of a robbery or disaster.
The Need for Insurance in the Shared Economy
As the popularity of peer-to-peer app services continues to grow (Airbnb, Uber, etc.), there will be growing pressure for operators to have sufficient insurance. Many traditional businesses (hotels, taxis, etc.) have been fighting against “shared economy” services with their central argument being that they do not provide adequate protection to consumers. One can be certain that as the shared economy grows, there will be stricter regulation of insurance requirements and may soon become mandatory.
Advice, Featured, Home Insurance