Do Insurance Rates Go Up If You Rent Part of Your House?

If you rent out multiple rooms in a vacation home, you may need landlords insurance.

If you rent out multiple rooms in a vacation home, you may need landlords insurance.

Renting out a room in your house can be a welcome source of income, but you need to consider how it may increase your expenses as well. Insurance is an important consideration because your current homeowners insurance will almost certainly not cover all possible liabilities. How much of your home you rent out, where you normally reside, and how often you rent out your home -- all affect your insurance needs.

Homeowners Insurance

Renting out a single room in your house for a short time will normally not trigger an increase in your homeowners insurance. If you intend to rent out the room for more than a month or two, you may need a relatively inexpensive "unit rented to others" rider added to your current policy. Another issue is your own residency. If you normally live in the house where you are renting out a room, then your homeowners insurance remains in full effect. If you are living elsewhere, and the house is otherwise occupied only by the renter, even if she resides in a single room, you may need a landlords policy.

Landlords Policies

Three landlords policies offer different levels of coverage. A basic DP-1 policy covers "named perils," usually fire and vandalism. A DP-2 covers additional named perils, such as weather damage and collision damage if a car hits your house. A DP-3 policy covers anything that's not specifically excluded. Exclusions are for such incidents as acts of war. In most cases, landlords opt for the inclusive DP-3 policy, the website says.

Gray Areas

The owner of a large vacation home sometimes occupies one or two rooms and rents out the remainder of the space during the summer season. Normally, the owner buys homeowners insurance with a "unit rented to others" rider along with the usual slight rate increase because it's a secondary residence. But when the income from summer renters is substantial, which can be the case in desirable beach rentals, and most of the house is given over to renters for the entire summer, homeowners insurance with a rider may no longer be sufficient. Consider asking a real estate attorney to review your current coverage.

Other Insurance Needs

Your homeowners insurance and tenant rider cover your own losses in the event of fire or theft, but it will not cover your tenant's. It's prudent to discuss this with your tenant at the outset, making sure she understands that to be covered, she will need to obtain separate renters insurance.

About the Author

Patrick Gleeson received a doctorate in 18th century English literature at the University of Washington. He served as a professor of English at the University of Victoria and was head of freshman English at San Francisco State University. Gleeson is the director of technical publications for McClarie Group and manages an investment fund. He is a Registered Investment Advisor.

Photo Credits

  • Gary Faber/Digital Vision/Getty Images