The West Michigan real estate market is one of the hottest in the country.  Oftentimes, sellers are receiving multiple offers the day their house is listed.  The result?  Offers contingent on the sale of a current home are often deemed uncompetitive.  Therefore, some buyers are purchasing a new house and renting their old one to help cover both mortgages.  On paper, it often makes sense.  But, as usual, there is more to consider.

There are two common ways to insure a house – a homeowners policy and a dwelling policy.  Most people insure their house on a homeowners policy – it generally provides better coverage and is more affordable.  So why would anyone use a dwelling policy?

The kicker is in the details of the homeowners policy language.  To be eligible for a homeowners policy, a house must be occupied by its owner.  Therefore, the family that rents out their old house to help juggle two mortgages can no longer insure that rented house with a homeowners policy.  Their only option is to use a dwelling policy.

A dwelling policy, although similar to a homeowners policy, tends to be more expensive.  Why?  Think back to that house you rented in college with your friends.  Yikes.  Now think of the home you own and live in with your family.  Much better, right?  Insurance companies aren’t oblivious to the fact that people take better care of things they own rather than rent.  Claim history proves that an owner-occupied house is less susceptible to losses than a house occupied by renters.  So while crunching the numbers to decide whether it makes sense to own both houses, don’t forget to touch base with us about options for insuring your house that is (or may become) a rental property.


This article was written by Derek Boer.  Please email Derek at derek.boer@boerinsurance.com with questions or comments.

Like to golf?  Check Dave's article titled When Is Cheap Insurance Like a Hole In One? from our summer newsletter.

Posted 7:51 AM  View Comments

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