Renting Out Rooms Comes with Risks

As the economy slumps, many homeowners are renting out rooms to help pay their mortgage. But before accepting that first rent check, they should check for legal and insurance repercussions.

Under some homeowner policies, the rental of rooms may be considered a business, and limits may be placed on their insurance, including coverage for contents, personal liability, medical payments and identity fraud. Policy add-ons or endorsements similar to those offered for home-based businesses may help bridge these gaps.

“The last thing struggling homeowners need are more ways to lose money,” said Candysse Miller, executive director of the Insurance Information Network of California. “To safeguard finances, homeowners should carefully review their insurance policies with their agent or company before seeking rental applications.”

Renters should also be aware that the landlord’s policy may not cover their possessions or provide liability protection in case they are sued. In California, renters policies average about $250 a year for $15,000 property coverage and up to $200,000 in liability protection.

According to a 2006 poll by Trusted Choice, a unit of the Insurance Brokers and Agents Association, about 81 million Americans rent homes and of those, nearly 65 percent have no insurance coverage.

For first-time landlords, IINC recommends researching city and state landlord/tenant laws. A detailed background check on the prospective tenant can help identify any potential problems that may arise during the tenancy. Many cities and municipalities also offer landlord/tenant services departments to help with questions and to avert disputes.