Rental homes have become quite controversial in small towns and communities here in Northern Michigan. Why? Because where one person sees increased traffic, unknown neighbors and events; another sees profit; or at least the ability to have someone else pay the mortgage and utility expenses of their owned property.
When it comes to insurance, however, the policy language is not controversial. The policy wording is clear that losses occurring when a home is not ‘owner occupied’ can be excluded even when that occupancy doesn’t contribute to or cause the loss.
Even though renting out homes is not a new thing anymore, we continue to see clients who carry a standard HO3 homeowners policy form on a building they are no longer ‘occupying’ full time.
If you are deciding to rent out your home, your room, your garage, your outbuilding; you need to be talking with your insurance agent. There are companies that will allow you to rent out a portion of the home, subject to time limitations or space limitations, some carriers charge a large additional premium for this exposure, and some small, and there are still some that don’t allow it at all, and have the right to either deny claims or VOID the policy completely if you were not upfront with the ‘occupancy’ of the property at the time the application was written and signed.
A standard home insurance policy was never intended for anything other than an owner-occupied residency. The premiums are calculated knowing that if I own my home, I am likely to take care of it. I am more apt to have that leaning tree taken down or to turn off the water if I am gone for a few months in the winter. Bottom line, if I own the home and am ‘invested’ in the maintenance and upkeep of the home, I am more likely to take care of it. The homeowner’s policy is priced accurately for that scenario.
The standard homeowner’s insurance policy is NOT written or priced for me to use as a hotel with transient travelers coming and going. This usage brings with it a higher likelihood of property damage as well as liability loss. When you open your home to people who have no financial interest in protecting it, the chance of a loss increases.
For this reason, we remind you with the summer coming, and weekly rentals becoming more popular, that you have a conversation with your insurance agent so that if and when a loss occurs, you don’t find yourself having no coverage and/or defense for the situation you find yourself in.
As always, we are here to assist with any of your personal or business insurance questions or needs.
