Are you turning your existing home into a residential rental? You have gone down the checklist, completed the repairs needed to get the property rent ready, placed your add and are working on placing a tenant. Chances are you forgot to update your homeowner’s policy which may no longer provide the needed coverage now that your property is a rental. If you fail to update your insurance company that the property is a rental they can sometimes deny coverage if a loss occurs. Updating your policy to Rental insurance provides liability and structural coverage for the home and its occupants. This policy does however, not cover tenants’ personal property in the event damage occurs via fire, water, etc. so tenants should purchase renters insurance to cover their personal belongings.

Be sure your Rental policy covers any vacancy periods. Recently, our clients had a property listed for sale and then opted to list for rent. When an agent visited the home to take updated marketing photos they discovered that the toilet had started to leak unfortunately causing significant damage. Fortunately the owner was able to quickly make the repairs needed to get the property back on the market since his policy did include a vacancy clause. Be sure to find an insurance company that provides the coverage which best meets your needs.

One additional item to consider with picking your policy is replacement cost vs. actual cash value. If you choose “actual cash value” to save money on the policy and you suffer a significant loss due to a flood a policy that dictates the damage would only be repaired based on the “actual cash value” at the time of damage. This means the insurance company could depreciate the value of the damaged items; for example, seven- year-old carpet has a zero dollar value leaving you to pick up the cost of the new flooring. If the total cost to repair your home is $29,000 the insurance company may only pay $15,000 of the “actual cash valve” leaving you the remaining balance of the $14,000 to get the property repaired. When reviewing insurance costs, consider replacement cost coverage—Actual cash value may have save you a few bucks up front, but is it worth it?

As a final reminder, be sure to find an insurance company and policy that provides the coverage which best meets all of your needs.
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