Renting out your property usually means you need dwelling property insurance to make sure you’re properly protected. That’s true for short-term rentals, too.
Why you need different coverage if you rent your house
As soon as you sign the lease with a tenant, you’ll most likely need to change your homeowners insurance to dwelling property insurance (also called a DP3 policy). This type of policy can cover some risks a standard homeowners insurance policy won’t.
Because you’re not living at the property, your coverage needs to change in three important ways:
- You don’t want to insure all your tenant’s belongings. Renters typically bring stuff with them, so you need a policy that only protects the personal property that belongs to you.
- You need to protect your rental income if there’s a loss. Significant damage to your property may make it uninhabitable, causing you to lose income from rent.
- You have more risk. From your insurer’s standpoint, your home may also be more likely to be damaged when you’re not living in the house year round because your tenant’s don’t have a vested interest in your property.
If you’re renting out property that has appliances and permanent fixtures, a DP3 can cover them. And if a covered claim keeps you from renting out the property, a dwelling property policy includes fair rental value coverage to protect your lost income.
Read more about the differences between DP3 and HO3 policies.
Does homeowners insurance cover rental properties?
In most cases, standard homeowners insurance doesn’t cover rental situations. The logic is simple: Your property becomes a business asset when you rent it out, and that creates more risk because tenants typically don’t care for a rented home the way a homeowner does.
That means if you have a standard HO3 policy on the property and you’re renting it to tenants, you run the risk of not having your losses covered if you need to file a claim. One way to protect yourself is with an endorsement to your home insurance that lets your policy cover occasional rentals.
When does home insurance cover rental properties?
Each insurer has its own rules about when homeowner coverage extends to rentals, so be sure to ask your agent before you buy a policy. In many cases, though, homeowners insurance covers occasional rentals based on the number of people or the length of the stay. For example, renting out a room a few weekends per year may be covered as long as the total number of days rented is less than one month.
Properties used as long-term rentals or exclusively for short-term rentals almost always require dwelling property insurance that’s not included in a normal homeowner’s policy. One caveat to that is House & Property insurance. You can customize this policy based on how you use your home.
Please note, the coverage available for rental properties in House & Property policies is dependent on getting approved by the carrier’s underwriting team.
When do you need dwelling property insurance?
You may need a dwelling property policy when:
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You don’t reside at the property.
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You rent the property out.
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You use the property for short-term rentals like Airbnb, Vrbo, etc.
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Your home has unique insurance needs (e.g., it has an older roof).
Be prepared to let your provider know how long you rent out the home, how much you rent it for, and how the property is used when it’s not being rented. Is it vacant, used as a vacation home, or will you live there? The more details you can provide, the better equipped your policy will be.
A note about short-term rentals
A lot of people invest in vacation rentals because they think it’s the same as buying a second house. They look at the costs of their residence – their mortgage, insurance, utilities, and other costs – and think the numbers will be similar for short-term rentals. But that’s often not the case.
The problem is that standard homeowners insurance typically doesn’t cover short-term rentals except in very specific cases. For example, your home insurance may cover a short-term rental if you live at the property and only occasionally rent out a room. But in most cases, you need separate coverage, such as dwelling property coverage.
Before you rush headlong into investing in short-term rentals, take a look at our article on home insurance for Airbnbs, and be sure to check with an agent to make sure you understand the costs.
Can dwelling property insurance cover personal belongings?
Dwelling property insurance can cover some of your personal belongings. But it doesn’t insure your tenants for their belongings in the house – they need to have renters insurance (also called an HO4 policy) for that.
Dwelling property insurance policies can cover appliances you provide for your renters in the property lease, like an oven, microwave, refrigerator, and washer and dryer. It’s worth noting that dwelling property insurance doesn’t cover these items for normal wear and tear or damage caused by the tenants.
How much does dwelling property insurance cost?
Dwelling property insurance tends to be more expensive than home insurance. According to the Insurance Information Institute, landlord policies cost about 25% more than a homeowners policy.
