Looking to make some extra cash? You may be considering renting out a room in your house, or perhaps even buying rental property.
But what happens when your tenant causes damage to your property? Does your regular house insurance policy cover tenants? Do you even need to tell your insurance broker about the student who moved into your basement? Find out these answers before you get caught with your pants down. You need to find the right insurance.
The first thing any insurance broker will tell you is: “Don’t lie!”
It may seem easier to fudge the truth in order to save a few bucks a month on insurance, but in the end, any form of misrepresentation on a policy (which is a legally binding document) can lead to the cancellation of that policy.
For example, you fill out forms for a rental property, and you state that your two-bedroom home will be rented out to a family of three. Then, there is a house fire, and upon further inspection, the insurance company discovers you’ve actually been renting the house to 10 students. Bad news for you! The policy will most likely be cancelled and you’re left to foot the bill.
Here are some important landlord tips and things to consider before becoming a landlord:
1. Most policies do allow for “occasional renters” but it is important that you check with your broker for an exact definition. You may think “occasional” is every weekend; whereas your broker thinks it’s only one weekend per month.
2. If you’re using a spare room in your house as a short-term rental (such as an Airbnb), many insurance companies consider this a business pursuit. You need a special policy for anything that fits under that category.
3. Make sure your tenant gets renter’s insurance. In fact, put it in your lease agreement. Your policy does not cover what is deemed “tenant vandalism.”
4. If it’s a rental property, you are responsible for visiting the property once a month. Turns out you haven’t been back in eight months and your tenants have turned the place into a grow op? Too bad – your policy is cancelled.
5. Lastly, if you’re renting out your condo or a room in your condo, make sure to check with your condo board that this is allowed.
The most important thing to keep in mind when deciding to rent out your house or a room in your house: be upfront with your broker. Rental properties are often inspected before they are insured, so if you are caught lying on your initial form, then odds are you’ll be deemed uninsurable.
There are important things to consider when becoming a landlord in terms of insurance.