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Changing home to a rental property? Read this first…

tony • November 16, 2018

 

If you turn your primary residence into a rental property, do you need to address your current insurance policy or will the insurance policy you currently have suffice for a rental property?

The short answer is, you’ll need to address your current policy.

Here’s what you need to know….

A primary residence homeowners’ policy for a single-family home is typically written on policy form H03.  A rental property for a single-family home is typically written on policy form DP3.  The DP3 policy form has verbiage to address the unique risks associated with a rental property whereas the H03 policy is written and packaged in a way to protect a primary residence homeowner against loss.

Want an example of this?

One of the easiest examples of the coverage difference to understand has to do with personal property.  If you’re insuring a primary residence, chances are you have all or most of your personal belongings in your house.  As such, the H03 policy will include personal property coverage in an amount generally equal to 25-50% of your dwelling coverage.  So, if you have a $250,000 house, you’d be looking at roughly $60,000 – $120,000 in personal property coverage.  Alternatively, if you’re insuring a rental property, chances are that you’re renting the property unfurnished.  The DP3 policy does not include personal property coverage as part of its standard coverages.  Of course, you can add personal property coverage; but it’s not typically included like it is for an H03 policy.

What should you do?

Many times, we find customers simply forget to inform their insurance company, or agent, that their primary residence will become, or has become, a rental property.  Afterall, insurance is typically included with the mortgage payment so out of site out of mind.

However, we sometimes have customers concerned that they won’t be able to get insurance if their home turns into a rental or that it will be more expensive.  The truth is the DP3 policy is typically less expensive than an H03 policy and it’s relatively easy to get insurance on a rental property.

The reality is that if you fail to inform your insurance company that your primary residence has become a rental, you run the risk of your claims being denied and/or your insurance policy getting non-renewed.  This is one of those situations where it’s best to be proactive to ensure you’re properly covered.

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