choosing an insurance policyIn today’s difficult post-Great Recession economy, I find that more of my clients are renting out their single-family homes. This allows them to move to a smaller place so that they can make ends meet or save money for the future more easily.

Some of my clients who have second homes are also renting those out as weekly, monthly, or year-round rentals for the same reasons.

Unfortunately, many of these clients believe that they are covered for insurance claims under the homeowner’s insurance they had in place prior to renting out their home. This is absolutely untrue in virtually all states.

Before you put up that “For Rent” sign in front of your home, call your insurance agent for assistance in answering the following questions:

What coverage do you need if your residence becomes an annual rental property?

Typically, if your primary residence becomes an annual rental property, your homeowner’s insurance policy will put severe limitations on property coverage claims and almost always deny any liability claims.

Choosing an insurance policy is an important part of renting out your home. Be sure to purchase a fire policy or rental property policy that will offer you the coverage you need for the building, loss of rents, and liability as a rental property owner.

What if your home will be rented as a furnished property?

If you plan to rent out your home furnished, add contents coverage to your new fire policy. Keep in mind that in most states, replacement cost coverage along with coverage for other perils, such as theft and vandalism, are not available to homeowners renting out their homes. It is unfortunate, but renters have always gotten a bad reputation, which is why insurance companies will not cover for theft or damage to property.

The cost of these policies varies depending on the location, type of home, and amount of adequate insurance needed. You may want to consider increasing your deductible in order to keep your costs manageable.

What other types of policies should you have for your rental property?

If you have a current flood policy on your home, you will not need to change the policy form. If you do not have a flood policy or earthquake policy, you may want to consider one, as all new fire policies exclude this coverage. Be sure to update the mailing address for your flood or earthquake policy when you move. The company will need to send you information and invoices at your new apartment.

If you have an umbrella policy, update it to reflect the fact that you’re renting out your main home, amend your mailing address, and add your new apartment to the policy. If you do not have an umbrella policy, I strongly consider purchasing one—being a landlord will certainly increase your liability.

In addition, you should consider purchasing a renter’s insurance policy, as the fire policy you took out for your main home will not provide coverage at your new apartment. You may also want to suggest that the tenants renting your main home purchase their own policy.

What if your residence will be used as a short-term rental?

Do not assume that your current homeowner’s policy will cover short-term renting. There are some insurance companies that will extend coverage if you are renting out your home for eight weeks or less out of the year. However, there are also insurance companies that will completely deny any claims that arise when your home is being rented.

Whatever your situation, contact your insurance agent before renting out your home for any period of time. He or she can help ensure that you have the proper coverage and are protected against possible claims.

Heidi Petschauer Fox graduated from St. John’s University in Queens, N.Y., in 1983 with a B.S. in management. She joined her late father’s firm, Petschauer Insurance, in 1982, became principal in 1995, and now shares ownership with her partner and cousin, Erwin Petschauer. She received her Certified Insurance Counselor (CIC) designation in 1997. She currently facilitates the professional and creative development of the entire Petschauer team and manages the personal lines and social media departments.