The short answer: If you move out of your home and rent it to someone else, your existing homeowners insurance policy is no longer appropriate.
And when I say appropriate, I mean that you could begin losing coverage as soon as that tenant moves in. And there’s always the possibility that claims might not get paid.
“So what?” you ask. “I just won’t tell my agent or insurance company.” And quite honestly, there are people who don’t. And to be fair, it’s not always to “screw the system.” In the chaos that ensues in moving from one place to another, people simply forget or don’t know to ask the question in the first place.
So the final answer is: If you’ve moved from your house and are renting it to a tenant, your homeowners insurance policy needs to be re-written as a dwelling fire policy.
So what’s the difference you ask? Here’s the difference between the two: A homeowners insurance policy is designed for an OWNER-occupied structure. A dwelling fire is designed for a NON-OWNER occupied structure.
Big difference there.
The homeowners insurance policy is quite specific in its definition of Named Insured as well, which in the above example is also equal to OWNER.
In this policy, “you” and “your” refer to the “named insured” shown in the Declarations and the spouse if a resident of the same household.
We also get a nice definition of insured location:
“Insured location” means:
a. The “residence premises”;
b. The part of other premises, other structures and grounds used by you as a residence and:
(1) Which is shown in the Declarations; or
(2) Which is acquired by you during the policy period for your use as a residence;
The reason you want to change your homeowners policy to a dwelling fire policy is simple: To Not Have to Deal With Insurance Company Bullshit When a Claim Happens.
That’s the true test of any insurance policy isn’t it- How a claim is paid? I’m not saying a claim would NEVER be paid. But even if it is, I guarantee the next thing the homeowners insurance company would do is cancel the policy. Without fail.
And then you’re scrambling to get coverage under not so great circumstances. And you could encounter lots of resistance from other insurance companies in your search.
So, why go through the B.S. to begin with?
If you’re in this situation, here’s the steps you need to take to get your house covered the right way
- Contact your home insurance agent or company and tell them you’re moving and renting your house to someone else. Tip- if they say “Don’t Worry About It” or “You Don’t Have to Do Anything”, RUN. And find a different insurance agent. Hey, that might even be me 😉
- Ask your agent to discuss deductible options, loss settlement options (Replacement Cost vs. Actual Cash Value) and causes of loss available (Basic, Broad or Special). Tip- the more “bells & whistles” you get, the more the premium. But, you also get more insurance for your premium dollar. So, a low deductible, Replacement Cost, Special form policy is going to be more premium than a high deductible, Actual Cash Value, Broad form policy. Discuss with your agent the best option for YOU.
- Confirm coverage, sign necessary paperwork and pay premium.
Not much different than any other insurance transaction is it? But you have to know about it to do it.
What if you rent your house to a business?
Yes, this happens. And a regular dwelling fire policy won’t work here. I just had this situation occur. A client moved to a different house and rented her prior home to a lady who’s going to operate it as an assisted living facility. Talk about a 180!
Because a business is going to be the tenant, a personal (read that again- PERSONAL) dwelling fire won’t work. I had to write a commercial property and liability policy because of the business occupancy.
Lesson learned here? If you’re going to rent your house to a business, be prepared to need a commercial policy and to be paying more premium than a personal dwelling fire policy. Perhaps after discussion with your insurance agent, you may reconsider. Again, nice to know the possibilities in advance to avoid unpleasant surprises.
Does this information help guide you in the right direction? Ever have this situation? Anything you want to add or share?
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P.S. If you’re looking for a new book to read, you can check out mine. Let me know your thoughts.