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Just exactly how does renting out a room to a roommate affect your home insurance situation?  You’re making a profit from your primary residence yet you’re still living in the house.  What do insurance companies think of a roommate renting your spare room?

Before I had my first roommate move in, I called my homeowners insurance company to see if they were “cool” with the idea of me renting my spare room.  I was kind of hesitant to ask because it’s kind of like don’t ask, don’t tell.  During my phone conversation with my current homeowner’s insurance company, I explained that I would still be living in my residence while I rent out my spare bedroom.  The insurance company was unmoved by the thought of me renting out my spare room.

So I called other insurance companies such as All State, Geico, State Farm, and several smaller companies to shop around for some quotes.  After some conversation, I found out that most insurance companies did not have a problem with a roommate/boarder renting your spare room as long as it is still occupied by the owner. I continued to ask some specific questions about my housing situation specifically, living in a townhouse and what will be covered in case of such and such.

I know most of you won’t care about my specific living situation.  So, I decided to compile a list of common questions and answers that might pertain to people thinking about renting out rooms.

Please do not take my word as absolute authority.  The information I provide is based on my current state and townhouse.  I made this information available to provoke thought for others who may be thinking about renting out their spare room.  Please verify your specific situation with an insurance company.

note: the italics represent actual responses from an insurance company.

Questions I asked Insurance Companies

How does having a roommate or boarder renting a room affect my home owner’s policy?

There’s not a problem with that because they way our(State farm) policy is structured, if your condo got destroyed and you couldn’t rent that space out, then you would actually get rental income coverage under our policy……….

 

……….He would need to get his own renters insurance, so that he would have coverage for his self as far as his own personal property and his personal liability.  So if he has people over and they do something and somebody sues him and they probably going to sue you too because you’re in there; then he has his own coverage.

 

All the insurance companies I spoke seemed indifferent on renting out my spare bedroom for profit.  However, if anything were to happen to my house; lets say my house burns to the ground, my roommate’s possessions would not be covered under my policy.  For this reason, the insurance companies recommended that I have my roommates purchase their own renters insurance.  In addition, if my roommate gets sued for whatever reason while he is living here, he would be covered under his renters insurance.

Do the insurance premiums increase with a roommate or boarder living in my townhouse?

If you have condo unit owner policy, which is what you buy from us(State Farm), you can have up to two roommates or boarders and its still not going to affect anything.  If you have more than that, then you would have another situation where we make an extra charge.

That was State Farm’s answer to that question.  The answer to this question varied from insurance company to insurance.  Some allowed up to one without any increases on insurance premiums while other allowed up to two roommates without any increases.

All insurance companies stated along the line that anymore than two roommates would increase your insurance premiums — a situation that I will never be in because my townhouse only has two bedrooms.  If you do own a 4 or 5 bedroom house and are planning to rent out 3 or 4 rooms, it is to your advantage to be honest with your insurance company rather than being denied coverage.

What happens if the renter/roommate is related to me, do they still need renters insurance?

The only way it would change if you made them a named insurer.  I don’t know if you want to do that because if anytime you have a claim, then the checks going to be made out to both of you and not just to you.

Despite the fact that the renter is related to you, you still need them to get their own renter’s insurance.  I wrote this because often times you have girlfriends or boyfriends move into their primary residence.  Technically speaking, that person who does not have an insurable interest in the place, needs to purchase their own renters insurance.  I have never heard or someone making their significant other purchase their own renters insurance just because they are moving in with them.

Do I need a written lease or proof that a roommate is renting a room?

You would need to get a lease drawn up between yourself and the person that you were renting out the room to. If something happened and during that time, as long as you had the lease there would be coverage for loss or rental income.

That was State Farm’s response.  Having a lease is to your advantage for getting reimbursed for rental income.  For instance, State Farm’s Insurance policy was structured so that if my residence burned down, I would be able to get rental income coverage.  In order to get this coverage, you need to have a written lease in place between you and your roommate.

All these questions and answers are based for an owner occupied policy.  This means you are still living in the insured addressed while you are renting out your room(s) to roommates.  The increase in premiums and the number of roommates you are allowed varied from one insurance company to another.  Do yourself a favor and check with your insurance company before renting out your room or you may be denied coverage.  Lastly and most importantly, make sure your roommates purchase their own renters insurance so that their personal belongings are covered and they do not become a liability under your insurance plan if they get sued.

I hope this answers any lingering questions about having roommates with a owner occupied insurance policy.  If you have any thoughts or questions please leave a comment.

Creative Commons License photo credit: TheTruthAbout

{ 14 comments }
  • rayout September 25, 2010, 4:08 pm

    Great post on something I wouldn’t have thought of. I am contemplating a couple of houses and would be renting out the spaces (and helping my parents rent out the room I am vacating).

    Reply
  • Christy April 20, 2011, 2:43 pm

    What about taxes?

    Reply
  • jp September 15, 2012, 8:02 pm

    I’m a little late to the game, but: Along the lines of having a lease with a significant other/relative – definitely make sure you have them sign a lease. Without a lease, and after a certian amount of time, they can start making a claim to your property – squatters rights & eminent domain type issues, which no one really ever wants to get into.

    Along the lines of taxes (Christy’s question): you have to pay taxes on the income you collect. You can make deductions on your taxes according to the squarefootage you are renting out on things like HOA, property taxes, insurance, etc. Actually, TurboTax does a really great job of walking you through rentals.

    Reply
  • irene August 20, 2013, 1:28 pm

    I need help. My parents-in-law will be the live-in caretaker of my single home property as I will be out of the country for three years. I am planning to rent out 4 bedrooms. However, I am having a hard time getting a landlord’s insurance with this kind of set-up. Can anyone recommend me an insurance agency who can accommodate my situation. Thanks.

    Reply
    • Mike August 23, 2013, 10:41 pm

      Normally, renting out 4 bedrooms is like running a commercial business, i.e. hostel, bed and breakfast. So a traditional homeowner’s policy won’t allow 4 roommates.

      Reply
  • Lori March 5, 2014, 1:40 pm

    In regards to having a roomie get renters insurance…what would be some situations where they get sued and it comes back on me or my home insurance ??

    Reply
  • AG July 13, 2014, 11:08 am

    Thank you for posting this. When I bought my condo owner’s policy, I made it very clear I will have a roommate paying me rent, and it didn’t seem to be an issue for them either. This helped confirm it – I just didn’t want to run into a situation where my home was destroyed and then my claim became denied, because of a live-in tenant.

    Reply
  • Lara Croft May 2, 2015, 5:47 am

    How could I possibly take your word as “absolute authority” when you don’t even know how to spell “homeowners” [insurance]?!

    Reply
  • Larry February 13, 2016, 9:26 pm

    Thank so much for sharing the information that I never think of. Again, Thanks. Larry

    Reply
  • Becca December 21, 2016, 12:01 pm

    Did you stop to ask if your personal property is covered if the roomer steals your personal property or damages it? That’s the question to ask your insurance agent.

    Reply
  • Mel S. January 7, 2017, 8:51 am

    Thank you for the information. Obviously, some people don’t understand that you are trying to convey information that might be helpful to other’s and not teach a class on spelling or English composition 🙂
    As he stated above it is your job to the homework and find the details of your policy from your own insurance company. No one not even the man who wrote this information is telling you to take it as absolute authority. If you did then you would have to be even less intelligent then your comment suggests.

    Reply
  • Tom March 22, 2017, 5:16 am

    I agree. Great info.

    I do know that I would never allow anyone to rent a room from me (separated) and ‘own’ own two homes. As in paid off. So that’s a gold mine to some but I have an umbrella policy on both because I got screwed once by an agent who changed my coverage and it cost me 38K. Long story but the point is you are nuts if you trust people in a sue happy world. Always read your coverage and point out exactly what you want. Don’t have a price in mind and work around that. Have coverage in mind and work around that.

    Typical renters insurance is $20 a month (no dog, that doubles it at a minimum) and if someone balks at $20 a month then it’s a red flag.

    I have a huge ranch that is designed in a way that is almost like having your own 1000 ft Apt but a shared kitchen so I am going to rent that part out. So thanks for the info.

    Even if my insurance company said all is covered (and it should under an umbrella policy) I still don’t want a mark against me because someone who had an accident that I didn’t invite over. Not to mention, I can sue him if he destroys the wood floors and so you don’t need a security deposit. Replacing 1000 ft of wood floors is way more than a security deposit. Security deposits are for buildings not homes.

    I wouldn’t explain any of this other than it’s cheaper my way. First and last with renters Ins proof is way cheaper than 1st, 2nd and a (useless) security deposit. The renter should jump at it. If they don’t, again huge red flag.

    Reply
  • Tom March 22, 2017, 5:19 am

    Edit above: First/Last, proof of renters insurance.

    Reply
    • Carol September 24, 2017, 10:05 pm

      We rented out a room to a young man. Because he had a drivers license, the car insurance company ‘assumed’ he was using our cars and wanted to raise our rates. We fought that because we never let him use our cars. A few months later he got his own car and insurance and we provided that paperwork to our insurance company. One has to think not only about house insurance but car insurance as well, especially if the renter has a license but no car and no car insurance.

      Reply

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