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Does Homeowners Insurance Cover Guest Houses?

Standard homeowners insurance typically covers your guest house as long as you do not rent it out. Other structures coverage B covers the structure of your guest house. Read the whole article to learn what else is covered, what is not covered, and what insurance you might need to get if you are renting your guest house out.

Read Time: 6 mins

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As in most instances, the answer to whether a homeowners insurance policy covers a guest house is more complicated than a simple yes or no. Every situation is unique and can lead to something like a guest house being covered or not and to what extent it is covered under a home insurance policy. In many instances, a home insurance policy does cover a guest house, but various situations may require certain policies in order for the guest house to be covered.

Key facts
  • Under a standard home insurance policy, guest houses are typically covered under the other structures section of coverage and that section’s coverage limits would apply while the personal belongings inside the guest house would be covered under the personal property section of coverage in the policy.
  • The personal liability section of the home insurance policy for the property also applies to the 
  • A separate landlord insurance policy would be needed if the homeowner rents out the guest house to others

How does homeowners insurance cover guest houses?

Under a standard home insurance policy, a homeowner’s guest house on their property will be covered by other structures coverage (section B). Any personal belongings that are inside the guest house will be covered under personal property coverage (section C). The personal liability coverage (section E) that is included in a homeowner’s policy also covers a homeowner for personal liability that occurs in the guest house.

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Other structures coverage B

Other structures coverage in a standard home insurance policy covers structures on the property that are detached from the home. This can include a guest house, pool, fence, shed, etc. Most common HO-3 insurance policies cover other structures on an open-peril basis. This means that with HO-3 your guest house is covered from most perils except for the ones that are listed in the policy as exclusions. The burden of proof is on the insurance company to prove that the damage was caused by one of the exclusions.

Typically the coverage limit is much lower under other structures coverage than it is in dwelling coverage, which is what covers the structure of the home and any attached structures. In most cases, the other structures coverage limit is 10% of the dwelling coverage limit. For instance, if the dwelling coverage limit is $300,000 then the other structures coverage would be $30,000. Some guest houses can be worth quite a bit more than the other structures coverage limit. Normally, the homeowner would have the ability to pay for additional coverage to fully protect their other structures such as a guest house if they choose to do so.

Personal property coverage C

Personal property coverage protects a homeowner from losses from personal belongings that are damaged or stolen. This coverage applies as long as the damage was caused by a covered peril or was stolen. If there is some related to the homeowner who is living in the guest house and has a number of personal belongings of their own, it may be prudent for the homeowner to raise their personal property coverage to fully protect all of the personal belongings on the property.

Personal liability coverage E

Personal liability coverage is protection to the homeowner for any legal or medical expenses that may be incurred as a result of the homeowner being found to be at fault for injury to a guest on the property or damage to a guest’s property. In this instance, maybe someone visiting your guest house, slips and falls on the tile inside, and gets injured. The coverage can help the homeowner being stuck with any medical bills of the visitor or help the homeowner if the visitor decides to sue the homeowner.

Is my guest house covered if I rent it out?

Standard home insurance policies will usually have an exclusion for structures, whether it be the home a guest house, or some other structure, that is damaged as the result of the structure being used for business purposes. Renting out a guest house is something that would fall under this exclusion. This means that additional coverage would be needed in order for the homeowner to be covered for damage to a guest house that was actively being rented to someone not related to the homeowner.

Short-term rental endorsement

If the homeowner is planning to rent out the home through short-term rental companies such as Airbnb or VRBO, they typically will need to reach out to their insurer to have a short-term rental endorsement added to the policy in order to have the guest house covered or purchase insurance options available through those companies.

Landlord policy for longer-term rentals

For longer-term rentals, the homeowner will need a landlord insurance policy. Landlord insurance policies are specifically designed to provide protection to people who own properties that they rent out to others. These policies provide coverage for the guest house, the property owner’s personal belongings in the guest house, loss of rental income, and personal liability. A landlord policy is similar to a standard home insurance policy in many respects, just simply more geared towards a property that the policy owner doesn’t live on, but instead rents out to others.

It is important for any renters of the guest house to note that they need to purchase their own rental insurance policy in order for their personal belongings to be covered. Landlord insurance policies protect the owner of the property, not the tenant. Renters insurance protects the tenant, not the property owner.

When is my guest house not covered?

There are a number of instances where a homeowners insurance policy will not cover a guest house on a homeowner’s property, including:

  • Renting out the property without notifying the insurance company or purchasing appropriate coverage
  • Flooding
  • Earthquakes or other earth movement
  • Normal wear and tear
  • Neglect
  • Pest infestations
  • Maintenance problems

Please note that this is not an exhaustive list and can differ from location to location and insurer to insurer on what exactly is covered or not covered in a policy.

Summary

Guest houses are normally already included under the protection of a standard home insurance policy through sections B, C, and D of the policy. A guest house will not be covered in the case that the homeowner is renting it out to a non-related person. In this case a separate landlord insurance policy would be needed to bring the guest house back under coverage. Each situation is different so take the time to make sure you are protected to the extent that you would like to be protected.

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ABOUT AUTHOR
Kyle has extensive background in financial planning and financial writing. He is an expert in home, auto and life insurance. Kyle holds a Bachelor's degree in Business Administration from San Diego State University and multiple financial planning designations.
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