Renting Out Your Home? Your Homeowners Insurance May No Longer Be Enough
Many homeowners decide to rent their property without realizing that becoming a landlord changes their insurance needs. Once tenants occupy the property, it is no longer simply an owner-occupied home. It is now a rental property—and a standard homeowners policy may not provide the coverage the owner expects.
Before tenants move in, the homeowner should notify the insurance carrier and obtain an appropriate landlord insurance policy.
Why Homeowners Insurance May Not Cover a Rental Property
A traditional homeowners policy is generally designed for a home occupied by its owner. The insurance company calculates the risk and premium based partly on the understanding that the insured homeowner lives at the property.
When the homeowner moves out and rents the property to tenants, the nature of that risk changes. If the insurance company is not informed of the change in occupancy, the owner could face coverage limitations or a denied claim after a fire, water leak, injury, or other loss.
Homeowners should never assume that their existing policy automatically covers a tenant-occupied property. They should disclose the rental arrangement to their insurance agent or broker and obtain written confirmation that the correct policy is in place.
What Landlord Insurance May Cover
A landlord or rental-property policy may include coverage for:
- Damage to the dwelling caused by covered events;
- Garages, fences, and other structures;
- Appliances or other personal property belonging to the landlord (such as when a property is rented furnished);
- Liability claims arising from injuries at the property;
- Legal defense costs for certain covered claims; and
- Lost rental income if a covered loss makes the property temporarily uninhabitable.
Coverage varies significantly among policies. Owners should ask about exclusions and additional protection for water backup, vandalism, building-code upgrades, earthquakes, floods, mold, and extended vacancies.
Landlord insurance generally does not cover the tenant’s furniture, clothing, electronics, or other belongings. The lease should therefore require tenants to maintain their own renters’ insurance, including personal-liability coverage.
Ask for Wrongful-Eviction Coverage
A property owner should also ask the insurance broker whether the landlord policy includes coverage for claims alleging:
- Wrongful eviction or attempted eviction;
- Wrongful entry;
- Invasion of privacy;
- Interference with a tenant’s right to occupy the property; or
- Other landlord-related personal injuries.
This coverage may be called wrongful-eviction coverage, personal-injury liability coverage, or a landlord personal-injury endorsement. It is not necessarily included in every landlord policy.
The owner should ask the broker to confirm in writing whether the policy covers the cost of defending a wrongful-eviction claim and whether any exclusions apply to discrimination, retaliation, harassment, habitability disputes, intentional conduct, or violations of law. The owner should also determine whether defense costs reduce the policy limit.
An umbrella policy should be reviewed as well. Some umbrella policies provide additional landlord liability protection, while others exclude rental-property or wrongful-eviction claims.
Make Sure the Correct Parties Are Insured
The policy should accurately identify:
- Every owner of the property;
- Any trust or limited liability company holding title;
- The property-management company, if applicable; and
- Any other person or entity that should be an insured or additional insured.
The property address, number of rental units, occupancy, rental use, and property-management arrangements should all be disclosed accurately.
Insurance Does Not Replace Compliance with Landlord-Tenant Laws
Even a well-written landlord policy does not protect against every claim. Policies commonly exclude intentional acts and violations of law, double, triple, and punitive damages, and disputes that began before the policy took effect.
California landlords may be subject to state and local requirements involving just-cause eviction, rent control, relocation payments, habitability, discrimination, disability accommodations, entry into the unit, security deposits, and termination notices. Before attempting to terminate a tenancy, refusing rent, entering an occupied unit, removing services, or undertaking renovations that will displace a tenant, the owner should consult an attorney familiar with the laws governing the property.
Protect the Property Before the Tenants Move In
Before renting out a home, the owner should:
- Notify the current homeowners insurance carrier;
- Obtain a landlord or rental-property policy;
- Ask specifically for wrongful-eviction and personal-injury coverage;
- Review liability limits, deductibles, exclusions, and defense-cost provisions;
- Confirm that any umbrella policy covers the rental property;
- Properly identify all owners, entities, and property managers on the policy;
- Require tenants to maintain renters insurance; and
- Obtain written confirmation of coverage from the insurance broker.
Becoming a landlord creates responsibilities and risks that do not exist when an owner lives in the home. Obtaining the proper insurance before the tenancy begins can help protect both the property and the owner if a claim or lawsuit arises.
Conclusion
In summary, landlords who do not hold the proper insurance coverage before renting out a property can find themselves uninsured or underinsured once an incident happens. You should take the necessary steps to obtain the proper insurance coverage now based on what your property is being used for. Many landlords do not realize that their landlord policy does not have wrongful eviction coverage a part of it. It is important to check that you have such coverage before you need it!
TRN Law Associates is available to help. We have been practicing real estate and landlord-tenant law in California for over 15 years. We have offices in San Francisco, San Rafael, and Santa Monica. Contact us at (415) 823-4566 to make sure that you are properly covered or if you should have any questions regarding a real estate or landlord-tenant matter.