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.