Here’s What You Need to Consider Before Becoming a Landlord
Renting out an extra room or perhaps your basement is a good way to earn passive income. How will this affect your insurance coverage? Here’s what you need to know first before deciding to become a landlord.
With a tight economy and rising cost of living, it’s always a good thing to find an extra source of income. You may decide to bake and sell your signature cookies online, babysit on your free time, or perhaps take advantage of rising rent prices by renting out your basement.
Homeowners can definitely benefit from the latter option. But before you can proceed down this road, there are vital insurance questions and considerations that you need to be familiar with to ensure that you or your tenant will be adequately protected.
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Your homeowner’s insurance covers the whole property
That means you don’t have to pay a higher premium to serve the intent. So long as you continue to live in the property and are not renting to more than two boarders, you should be okay.
However, before anything, you must know local laws about holding a rental property in the region you live in. There might be standard renter-landlord policies that you need to abide by before you start earning.
Your homeowner’s insurance policy has its limits
As you may already know, your standard homeowner’s insurance policy covers furniture, clothing, appliances, electronics, as well as liability for any injury that occurs to someone while at your home.
But while your policy does provide coverage for the entire structure, it does not offer protection in case your tenant’s properties or belongings get lost or damaged due ro theft, fire, or any similar incident. They would have to get their own renter’s insurance for the purpose.
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What does a renter’s insurance provide?
As a renter, the property being rented is not a boarder’s concern except for the space they are renting. Meaning, you are responsible for property damage, loss, or injury that occurs in this space as a renter. Respectively, you also need protection for the same risks.
Additionally, you would have to worry about getting permanent lodging in the event that the place gets uninhabitable for some reason. In this case, the renter’s insurance takes care of the cost needed.
A renter’s insurance also provides coverage for a renter’s personal properties including coverage for personal liability and loss of use.
To provide full coverage and peace of mind, you may upgrade your homeowner’s insurance policy by purchasing additional coverage OR taking on an umbrella policy to raise your policy limits.
Typically, there are four types of coverage for a homeowners insurance:
Liability coverage
Causing injury to someone within your property’s premises due to negligence, or an injury caused by one of your family members or pets can easily result in lawsuits. A liability coverage pays for this specific cost.
Personal property
If your belongings or possessions got stolen or were destroyed or lost due to disasters deemed covered by your policy, a personal property coverage can compensate for the lost cost up to the cap limit set by your policy.
Structural coverage
It pays for the cost of repairing or rebuilding a home that was destroyed or damaged by a covered disaster. This often includes attached structures as well.
Additional living expenses
This provides coverage for the money you need to shell out while renting a lodging space while your home is rendered uninhabitable for some reason. This also shoulders the cost of rent money you lost due to this event.
Having a stranger live in your home poses risk. Even if you’re getting money out of it, it always pays to mind such possibilities. Think about raising your insurance limits or purchasing an umbrella policy before you decide to become a landlord.
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