What insurance do I need if I rent out my home in a development?

You'll need to make sure that a combination of insurance policies are in place to protect you.

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Question:

I own a condominium in a planned development. I plan on renting out my condo for six months while I take a sabbatical. Do I need to keep my homeowners’ insurance policy? Or will everything be covered under either the HOA’s insurance or the renter’s insurance policy?

Answer:

You probably won’t be sufficiently covered by either the renter’s or the homeowner’s association’s (HOA’s) policy. In fact, you probably won’t be adequately protected even if you keep your current homeowner’s policy. You’ll need to consider:

  • what your homeowners’ insurance policy will cover if you rent the place out
  • what the renter’s insurance policy (if any) will cover, and
  • what the HOA’s insurance covers with relation to your unit.

To be fully protected for any loss or damage to your condominium while you are away, you will likely need to either obtain an endorsement to your current homeowner’s policy, or purchase a new, “landlord’s” insurance policy.

To determine whether your current homeowner’s policy will cover you, you’ll need to review its terms. Under most owners’ policies, coverage does not apply if you rent your home out (although some allow you to rent your home out for an occasional, short period of time). Sometimes, an endorsement to the policy is available to cover a longer rental.

An endorsed homeowner’s policy and a landlord’s policy both typically cover losses from damage to, or theft from, your home. However, landlord’s insurance also typically reimburses you for rental income lost while any damage to your home is repaired.

You might also want to require any renter to have a renter’s insurance policy in place as a condition of signing the lease. Renter’s insurance policies are mainly meant to protect tenants from loss or damage to their personal property, though such policies can indirectly benefit you, as the landlord, as well.

Rental policies sometimes cover loss or damage to the home caused by the negligence of the renter (for example, if water damage occurs to the unit because the renter forgot to turn off the bath tap). Liability coverage for the renter might also be included. If so, the policy might cover medical bills and other costs and expenses in the event that a renter’s guest gets injured on the property and sues the renter for damages.

Renter’s insurance typically does not cover any loss or damage to the property not caused by the tenant, nor will it cover any of your own personal property that's in the unit. That’s where your own insurance coverage will come into play. Also, even if the renter’s policy contains liability coverage protecting the renter, it typically won’t protect you as the owner in any liability lawsuit filed directly against you.

HOA policies typically cover only the common areas in the development. Which parts of the development are common areas depends on the development’s governing documents. In a condominium, the exterior walls are ordinarily considered common areas, while the interiors of the units are considered the property of individual owners.

This means that if damage occurs to the siding or roof of the condominium building, for example, the HOA insurance might cover it. However, the HOA policy will probably not cover any damage to the interior of the unit (such as ruined flooring, walls, or appliances).

The HOA insurance also won’t provide protection for any of your personal belongings in the unit. Without your own insurance coverage, you’ll be paying out of pocket to replace things such as fire-damaged furniture or art.

To make sure you are adequately protected while renting out your unit, meet with an experienced insurance agent to determine what type of coverage you need. Bring a copy of the development’s governing documents and of the HOA’s insurance policy.

Also, discuss with the agent what type of policy and coverage you should require your tenant to obtain. With all the information in hand, you can determine what coverage you need to ensure you have adequate protection while you’re away.

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