Renting out your home after a PCS: the right policy

Why the policy has to change

A homeowners policy is written on the assumption that you live there. Occupancy is a condition, not a detail. Once the house is tenant-occupied, the insurer's exposure changes: different people, different care, different liability.

Carriers find out. Claims adjusters ask who was living in the property, and a denial on occupancy grounds is clean, cheap and hard to argue with. The fix costs a phone call before the move, and nothing afterwards.

What a landlord policy covers

Often called a dwelling fire or DP-3 policy, it rebuilds the same house for a different purpose:

• The building, ideally at replacement cost rather than actual cash value.
• Liability, for injuries to tenants and their guests.
• Loss of rent, which pays the rent you would have collected while the property is uninhabitable after a covered loss. This is the line that makes the policy worth having.
• Your own contents, only if you list them: appliances, a ride-on mower, anything left in a garage. Tenant possessions are never covered by your policy.

Expect a different price. Landlord policies often cost somewhat more than the homeowners policy they replace, and the rent usually absorbs it.

The vacancy clause

Almost every property policy restricts cover once a building has been vacant for a set period, commonly 30 or 60 consecutive days. Vandalism, water damage and theft are typically the first things excluded.

That matters in two situations feds hit regularly: the gap between moving out and the first tenant, and the gap between tenants. If either will run long, tell the carrier and ask about a vacancy endorsement rather than assuming the policy still responds.

Making tenants carry their own

• Require renters insurance in the lease, with a minimum liability limit, and ask to be named as an interested party so you are told if it lapses.
• Collect proof before handover, not after.
• It protects you as much as them. Their policy responds first when they cause damage or someone is hurt through their negligence.

It costs them little. What a renters policy does and does not cover is worth sending them.

Your lender and your VA loan

Tell the mortgage servicer the policy changed, and make sure the new policy names them correctly. Escrow accounts and lender records both need updating, and a mismatch can trigger force-placed cover.

If it is a VA loan, occupancy rules are their own subject. The programme is built around owner occupancy, with recognised exceptions for military moves, and the answer depends on your orders and timing. Ask your lender and read what the loan requires you to carry before assuming anything.

Before the tenants move in

• Switch to a landlord policy with an effective date before the tenancy starts.
• Set the dwelling limit to rebuild cost, and check whether wind, hail or hurricane deductibles are percentages rather than flat sums.
• Add loss of rent, and check how many months it covers.
• Consider umbrella cover. A rental property is exactly the exposure it exists for, and it must be told the property is there.
• Photograph every room before handover, with dates.
• Tell the lender, and keep the confirmation.
• Check whether a property manager's policy covers anything, because it usually covers them rather than you.

Common questions