Insurance for When You Are Renting out a Spare Room

Renting out part of your home can be a great way to make extra cash for many homeowners. However the chance for property damage may go up, and you'll need to see if you're properly protected with your current homeowner's insurance if you make this decision. Whether you need landlord insurance or if your homeowner's insurance will still cover you will depend on your current homeowner's insurance company and a few additional factors.

To be safe, you'll need to call your insurance agent to determine if you can keep your or expand your current coverage. We recommend you do this because, in the event of tenant damage, your homeowner's insurance policy may not cover damages in the event that you did not disclose that you're renting out a room.

Your homeowner's insurance agent will consider a few factors in determining what type of coverage you may need on the call:

• Is this a one-time, short-term rental for under a month?
• Is this going to be a series of short-term rentals on a platform like Airbnb?
• Will there be one tenant or multiple?

After determining the information above, it's up to your insurance company on how they want to proceed. This could mean that your policy will still cover you without raising your premium, your premium could go up, you may have more limits on your coverage, or in some cases, your homeowner's insurance policy will no longer cover you at all. While this can be a difficult situation to navigate, it's better to determine this before something happens to your property.

In the event that your homeowner's insurance policy is canceled because you are renting out a room, you'll want to look into landlord insurance, which is designed for property owners who need property and liability insurance for their rental property. Landlord insurance has the added benefit however of protecting you in case of the loss of use of your home resulting in you losing your rental income. A standard homeowners insurance policy will only cover you for the replacement cost of the house, and potentially the cost of where you need to stay in the interim, however, a landlord insurance policy can also cover the loss of income you may face during this time.

Note to Reader:

If you are going to cancel your homeowner's policy, then try to cancel it on the renewal date to avoid extra costs and processes, also called flat cancellation.

Homeowners Insurance and Airbnb

Many Airbnb hosts rent out a second home previously covered on a homeowners insurance policy. Homeowners insurance covers properties from named perils such as fire, lightning, and hail—all of which are events not covered under Airbnb’s AirCover.

The catch for Airbnb owners, however, is that homeowners insurance policies specifically exclude “business activity.” And because most Airbnb hosts do not live in their rental properties, the business activity exclusion applies. If your insurance company catches wind that your home is not actually vacated by you (or whomever is the policyholder), and the property is damaged by a renter instead, they will almost always reject your claim.

There is one exception in which your homeowners insurance may cover your Airbnb, and that is if you are also living on the property. If you have a multi-family property and are living on premises, your homeowners insurance carrier may offer a “unit or residence rented to others” endorsement. This endorsement will cause your premium to increase, but will likely be cheaper than purchasing a new line of insurance altogether.

Landlord Insurance and Airbnb

Can you use landlord insurance for an Airbnb? Possibly! Landlord insurance offers property and casualty insurance, protecting you and your tenants (such as a property manager). In addition to the main perils listed in a homeowners policy, landlord insurance extends liability coverage to all tenants living on the property.

The main difference between landlord insurance and homeowners insurance is that landlord insurance offers rental income protection. This means if your home is unfit for renters due to a reason such as fire damage, your landlord insurance policy should cover your rental income. And whereas homeowners insurance covers personal property – think furnishings, clothing, artwork – landlord insurance does not.

We recommend talking to your insurance company about Airbnb rentals. Short-term rentals of under thirty days are not usually covered by landlord insurance policies. Renter insurance could be a good idea if you have a tenant who will stay for more than a month consecutively on your property.

What if I'm just renting out a room? Do I need to get renters insurance from my tenants?

Consider these factors when deciding if you need to require renters' insurance from your tenants:

• Are you planning on doing a series of short-term rentals through a platform such as Airbnb? In this situation, the answer would be no.
• Are you planning on renting out the room to a longer-term tenant? In this case, we recommend that you require renters insurance to better protect both your rental income and your personal property.

A standard renters insurance policy will not only cover your tenant's personal belongings in case of a covered loss, such as a house fire, but will also provide liability insurance in case your tenant is liable for medical expenses incurred by a third party. Legal fees and medical expenses are covered by your landlord insurance, but filing claims can increase the cost of your own insurance.

Renters Insurance

Renters insurance is there to give tenants protection against personal property loss, loss of use, and liability. For example, if someone breaks into a storage locker in the apartment and steals an expensive bicycle, renters insurance could cover the tenant’s loss.

If the tenant’s residence is damaged and they have to relocate while repairs are made, staying in a hotel would be very expensive; renters insurance could cover these costs.

Finally, renters insurance can also provide liability protection for the tenant if they’re sued for something like negligently starting a fire.