You’re a homeowner who made the decision to rent out your home to a tenant. This tenant moves in and after a while, you receive a call alerting you to a flooded basement and immense damages. You come to find out that this was not caused by a burst pipe but rather the tenant leaving the bathtub running.
Your house is flooded and it’s due to the irresponsibility of the tenant you were renting to. Does your homeowners insurance cover the damages? Generally speaking – No.
In most instances, the coverage is only applicable to yourself as the insurance company most likely issued you the policy assuming you would be the one living on the property. If you find yourself in this situation then there’s little you can do moving forward.
There are some options you could pursue if you are a homeowner looking to rent out your property. Be cautious, however, as each option comes with its own possible pitfalls.
Require a Security Deposit before renting
When renting out a property to a potential tenant, its good practice to require them pay a security deposit before taking residence. Most renters will ask you to do this and it makes sense why. If the tenant causes damages – holes in the wall, torn rugs, chipped tables – you hold the right to keep their deposit to pay for repairs.
By requiring a security deposit before renting out your property, you prevent yourself from having to pay for small repair of minor damages.
That’s one issue with a security deposit: they only cover as much as was deposited, which is a small amount. If your tenant floods the basement or burns the house down, you still find yourself responsible for covering the cost.
Check your Homeowners Policy beforehand
Before renting out your property, make sure you are properly covered to do so. Most likely your insurance company will not pay for serious repairs if they were caused during the rental process. As previously mentioned, the insurance company probably assumed you would be the occupant of the property.
If your policy does not include tenant vandalism as most don’t, it may be best to call and alter your policy ahead of time. This way you don’t find yourself making the mistake of renting to a tenant and having to pay out of pocket for their damages.
What are some options that cover these more expensive repairs?
Look into Landlord Insurance
First off, what is landlord insurance?
Otherwise, known as dwelling insurance or dwelling-fire insurance, landlord insurance is a policy bought along with homeowners insurance to protect a home in the event that they rent it out to a tenant.
Does landlord insurance protect against tenant vandalism?
Well, every insurance policy is different, so every case would be as well. It all depends on your situation and which form of coverage policy you purchased. There are three different forms of landlord policies:
- Dwelling Property Insurance Form 1 (DP-1) – This form of insurance covers the least amount of situations. DP-1 forms are an actual cash value policy meaning you will be reimbursed for the depreciated value of your property by your insurer.
- Dwelling Property Insurance Form 2 (DP-2) – This form of insurance covers the middle range amount of the landlord insurance policies. This is a replacement cost value policy where the insurer will reimburse you for full value of your property.
- Dwelling Property Insurance Form 3 (DP-3) – This is the highest coverage open-peril policy among the three forms. The DP-3 form is a replacement cost value policy as well.
Does your landlord insurance cover your case?
Each case is different and so each possibility of coverage is different as well. In the eyes of landlord insurance policies there are two broad categories of policies that you may choose from by choosing your DP Form: Named and Open Peril.
Named peril policies are DP-1 and DP-2 policies and cover only what is listed on the policy. This means that if something is damaged that was not listed on the insurance policy, it will not be covered by the insurance company leaving you to pay for it yourself.
Open peril policies are under DP-3 forms and cover anything not listed on the policy unless specifically excluded. In this case, unless your policy mentions the exclusion of fire damage, you will be covered for anything including a burnt down kitchen.
Depending on the type of landlord insurance you buy you could be covered for both accidental and intentional tenant damage. As long as you can prove it to your insurance company and your policy covers your specific case, they should be able to cover it.
If you’re planning on renting out your property and only have homeowner’s insurance, either buy landlord insurance or be prepared to pay out of pocket for any major damages.
