Your Homeowners Policy Doesn't Cover a Rental

The first call to make when you decide to rent your house out is to your insurance agent, and it's the one owners skip. Not because they're careless. Because the policy is already in place, the bill is already on autopay, and nothing about the house has changed.

What changed is who lives there, and that's the thing the policy was priced on.

Why the homeowners policy stops working

A homeowners policy is written for a house the owner occupies. That assumption sits underneath the rate, the coverage, and the liability section.

Rent the house out and the assumption is no longer true. Carriers handle that in different ways and none of them are good for you: some will cancel, some will non-renew at the next cycle, and some will keep taking the premium and raise the occupancy question when you file a claim. The last one is the expensive version, because you find out after the fire.

Telling your carrier is the whole fix, and it costs a phone call. Say the house is becoming a rental, say when, and ask them in writing what they need.

Insurance isn't the only thing that changes when a tenant moves in. What happens to your homestead exemption covers the tax side of the same switch.

What replaces it

A dwelling policy, written for a home the owner doesn't live in. The forms are named DP-1, DP-2 and DP-3, and they differ in what they cover.

DP-1 is the thinnest, covering a short named list of perils and often paying actual cash value, which is replacement cost minus depreciation.

DP-2 is broader, covering a longer named list.

DP-3 is what most owners want. It covers the building on an open-peril basis, which means it covers any cause of loss the policy doesn't specifically exclude, rather than only the ones it names. The burden sits with the insurer to point at an exclusion rather than with you to find your loss on a list.

Two things a dwelling policy does not do. It doesn't cover your tenant's belongings, which is their renters policy and not yours. And it doesn't cover flood, ever, on any form.

Loss of rents is narrower than it sounds

Most dwelling policies include fair rental value, often as a share of the dwelling limit. It pays the rent you lose while a covered loss is being repaired.

Read the trigger carefully, because it's the part owners misunderstand. Loss of rents pays when a covered event makes the house unlivable. A fire, a hurricane, a burst pipe. It doesn't pay when a tenant stops paying, breaks the lease, or leaves early. That isn't an insurance problem and no landlord policy treats it as one.

Two numbers to ask your agent for: what the limit is, and how long it pays. A rebuild in Florida after a named storm can run long, and a policy that pays six months of rent on an eighteen-month rebuild leaves you carrying the mortgage for a year.

The hurricane deductible is the number that matters

Most owners can't recite this figure about their own policy, and it's the largest single number in it.

Your hurricane deductible is separate from your regular deductible and it's usually a percentage rather than a dollar amount. Section 627.701, Florida Statutes requires insurers to offer personal lines residential policyholders a choice of $500, 2 percent, 5 percent, or 10 percent of the dwelling limit, with some exceptions by dwelling value. Above a $250,000 dwelling limit, the insurer no longer has to offer you the $500 option at all.

Run the percentage on your own house before you assume it's manageable. On a $400,000 dwelling limit, a 5 percent hurricane deductible is $20,000 out of pocket before the policy pays anything. At 10 percent it's $40,000.

One more detail in that section that works in your favor: for personal lines policies, the hurricane deductible applies annually rather than per storm. Two hurricanes in one calendar year means one deductible, not two.

Budget for it as cash you need to have, not as a number on a page. A rental that cash-flows $200 a month doesn't produce a $20,000 deductible on its own. Price the rent with that in mind: how much rent you can get for your house covers the other half of that sum.

Flood is a separate policy

Flood is excluded from every dwelling form. If the house is in a flood zone and you have a mortgage, your lender will require a flood policy. If it isn't in a flood zone, you can still buy one, and plenty of Tampa Bay flooding happens outside mapped high-risk areas.

Two things about flood coverage that catch owners. Building and contents are priced separately, so a building-only policy leaves the appliances uncovered. And a standard flood policy does not replace lost rent, so the months a flooded house can't be lived in are months you pay the mortgage out of something other than rent.

Roof age decides your premium, and sometimes your options

Roof age is the single biggest rating factor on most Florida rental quotes, and past a certain age it stops being about price and starts being about whether anyone will write the policy at all.

An older roof can mean a higher premium, a non-renewal, or coverage that pays actual cash value rather than replacement cost, which on a roof is a large difference. Carriers set their own thresholds and they move, so the only answer that's worth anything is the one your agent gives you about your roof.

If you're deciding whether to replace a roof before renting, get the quote with and without it. Sometimes the premium difference pays for the roof faster than you'd expect, and sometimes it doesn't.

What to do before a tenant moves in

1. Call your carrier and say the house is becoming a rental. Get the answer in writing.
2. Ask for a dwelling quote, and ask which form it is.
3. Read the hurricane deductible off the declarations page and multiply it out.
4. Ask what the loss of rents limit is and how many months it pays.
5. Price flood separately, even if nobody requires it.
6. Ask what your roof age does to the quote, and whether the roof is covered at replacement cost.
7. Require renters insurance in the lease. It covers your tenant's things, which yours never will.

If this is your first rental, the accidental landlord's first month covers the rest of the setup in order, and what an empty house costs you every month covers the gap between tenants, when a vacancy clause in the wrong policy becomes a problem of its own.