A homeowners policy is written on the assumption that you live in the property. Rent it out, and that assumption no longer holds, along with several coverages that depended on it.
The replacement is generally a dwelling fire form, the family of policies designed for non-owner-occupied residential property.
Why the homeowners policy stops fitting
Three things change when a tenant moves in.
The occupancy changes. Someone other than you controls the property day to day. An HO-3 policy is not built for that, and continuing it on a rented property can create a coverage problem at claim time.
Your personal property leaves. Most of what Coverage C protected is now in your actual home. What remains at the rental is appliances, maintenance equipment and furnishings you provide, which is a different exposure.
A new income stream appears. Rent is now something a covered loss can interrupt, and a homeowners policy has no mechanism for that.
Renting out a property you insured as a residence, without telling your insurer, is one of the more consequential undisclosed changes. Tell them before the tenant moves in.
DP-1 versus DP-3
The dwelling fire forms are numbered like homeowners forms, and the difference between the two common ones is significant.
| DP-1 basic form | DP-3 special form | |
|---|---|---|
| Perils on the structure | Named perils, a listed set | Open perils, covered unless excluded |
| Typical valuation | Frequently actual cash value | Commonly replacement cost |
| Breadth | Narrower | Broader |
| Typical use | Older, lower-value or harder-to-place properties | Most standard rental properties |
The valuation difference compounds the perils difference. A DP-1 settling an older roof at actual cash value pays the depreciated amount, which on an aging rental can be a small fraction of the replacement cost. See actual cash value vs replacement cost.
DP-3 is generally the more appropriate form for a standard rental. DP-1 shows up where the property is older, in poor condition, of low value, or otherwise difficult to place. If you are offered DP-1, it is worth asking why and whether DP-3 is available.
What a landlord policy covers
The structure, against the perils the form provides, including fire, lightning, wind, hail, and the rest of the covered set.
Other structures on the property, such as a detached garage, shed or fencing. See other structures coverage.
Your personal property at the property, meaning items you provide for tenant use or maintenance: appliances, a lawnmower, a snow blower, furnishings in a furnished rental. This is usually a modest limit and is scoped to property used to service the premises rather than household goods.
Liability, for injury to a tenant or guest arising from the property, and for property damage you are responsible for. See personal liability coverage.
Loss of rents, covered next.
Loss of rents, the coverage unique to this policy
If a covered loss makes the property uninhabitable, you lose rental income while it is repaired. Fair rental value coverage, which appears as a distinct coverage on dwelling fire forms, addresses that.
Two structural points:
It is commonly expressed as a percentage of the dwelling limit, or capped by a time period, or both. Conventions vary by insurer, and the resulting figure may or may not reflect what the property actually rents for.
It responds only to a covered loss. A tenant who stops paying rent, or a vacancy between tenants, is not an insurance event. Rent default is a credit and legal matter, not a covered peril.
Worth checking: whether your loss of rents limit reflects current market rent, and how long it would pay given realistic repair timelines in your area. After a widespread event, repairs take longer than usual.
Your policy never covers the tenant's belongings
This is the point tenants and landlords both get wrong, and it is worth being explicit in the lease.
A landlord policy insures the building and your interest in it. It does not insure a tenant's furniture, electronics, clothing or anything else they own, and it does not provide their liability coverage or pay their additional living expenses if the unit becomes uninhabitable.
Only a renters policy does that, which is why many leases now require tenants to carry one and to provide proof. It protects the tenant, and it also reduces the chance of a dispute or a claim against you after a loss. See renters insurance explained.
Some landlords require being named as an interested party on the tenant's policy so they are notified of cancellation.
What is still excluded
The familiar exclusions carry across.
Flood requires separate coverage, whether through the NFIP or the private market. See flood insurance and the NFIP.
Earthquake requires a separate policy or endorsement. See earthquake insurance explained.
Wear, maintenance and gradual damage, same as any property policy. Tenant-caused damage occupies a grey area: sudden accidental damage from a covered peril may be covered, while wear, neglect and intentional damage generally are not. This is what a security deposit and the lease address.
Sewer and drain backup generally needs an endorsement, as on any property policy. See water damage and what home insurance covers.
Short-term versus long-term rental
The distinction matters and the answers differ.
A long-term lease, typically six months or a year, generally points to a landlord or dwelling fire policy.
A short-term or nightly rental is treated differently again, often as a business use requiring specific endorsements or a commercial policy. See short-term rentals and home insurance.
Renting out part of a home you live in is a third situation, and one where your insurer's position varies considerably. Ask specifically.
Practical points
- Liability limits deserve attention. A rental property adds an exposure with people you do not control on premises. An umbrella policy can sit above it, and can often include rental properties if they are scheduled. See umbrella insurance explained.
- A vacancy between tenants can trigger a vacancy clause, which is a real gap on rental property. See vacant and unoccupied homes.
- Set the dwelling limit on rebuild cost, not on what you paid or what it would sell for. See how much dwelling coverage do you need.
- Multiple properties may be written on one policy or several, and an umbrella can coordinate the liability.
- Contractors doing work on the property should carry their own liability and workers compensation coverage, and it is reasonable to ask for certificates.
Related reading: what homeowners insurance covers, filing a home insurance claim, and how to read your declarations page.
Policy forms, covered perils, valuation, loss of rents structure and availability vary by insurer and by state, and your policy documents control. Landlord and tenant law, including responsibility for damage, varies by state and locality, and nothing here is legal advice. For your own property, speak with a licensed agent, an attorney where appropriate, or your state's Department of Insurance. You can also request home insurance quotes and get connected with licensed providers in your area.