Homeowners vs landlord insurance in Texas

Short answer. Once tenants move in, a homeowners policy usually stops fitting, because it is written for a home you live in. Tell your insurance company or your agent before you move out, and move the house to a landlord (dwelling) policy, often a DP-3, starting the day it stops being your home.

A homeowners policy includes personal liability; a landlord policy may not. The Texas Department of Insurance's (TDI's) standard dwelling form, the TDP-3, has no liability section, so look for a liability limit on the new declarations page (the policy's summary page). Lost rent replaces your own living expenses, and your tenant's belongings become your tenant's to insure. If you have a mortgage, your lender needs the new declarations page and needs to know who pays.

Does homeowners insurance cover a house you rent out?

Often not fully. A homeowners policy is built around the person who lives in the house. TDI lists what most Texas home policies bundle together: the house, your belongings, other structures, additional living expenses if you have to move out during repairs, personal liability and medical payments (TDI Home insurance guide). Most of that assumes you are the one living there. TDI's standard homeowners form, the HO-B, describes the insured home as the dwelling "where an insured resides or intends to reside" (HO-B).

TDI's page on renting out your home is written mainly about short-term visitors, and it is blunt: "Most homeowners insurance won't cover damage to a rental property, or it might limit what it pays for." It describes landlord insurance as "mainly for traditional, long-term leases" (TDI, Renting out your home?). A house leased to a tenant for a year has the same basic problem: the policy was written for a different use.

How the house is used also affects how insurance companies price and accept it. Texas law lets a Texas-licensed insurer cancel a homeowners policy when there is "an increase in the hazard covered by the policy that is within the control of the insured and that would produce an increase in the premium rate of the policy" (Ins. Code §551.104(c)). Whether renting out a particular house counts is the insurance company's decision, not ours. Either way, tell them.

Homeowners vs landlord policy, side by side

TDI's standard Texas homeowners form, the HO-B, and the national HO-3 are the same type of policy: all risks on the building unless excluded, and named perils (a listed set of causes) for your belongings (HO-B; TDI, All risk or named peril). Many insurers use their own forms of that type. A landlord policy is a dwelling policy. The DP-3, and TDI's own version, the Texas Dwelling Policy Form 3 (TDP-3, last revised in 2002; many insurers now use their own approved forms), covers the house against all risks of physical loss unless excluded (TDP-3).

"Typically" sits behind every row. The declarations page and the forms attached to it decide what a particular policy covers. Coverage letters (A, B, C…) also differ between forms: on the TDP-3, Coverage B is personal property, while many other policies use B for other structures. Compare coverages by name, not by letter.

What changes when the tenant moves in

Liability: make sure it's on your policy

On a homeowners policy, personal liability comes with the policy. A landlord policy does not have to include it: the TDP-3 contains no liability section at all, though many insurance companies include premises liability on their landlord policy anyway. Look for a liability limit on the declarations page of any landlord quote. If no liability limit is shown, ask: the policy may have no liability at all. More in Landlord liability insurance in Texas.

When you move, the personal liability on your old homeowners policy does not stay behind with the house. Your new home gets its own homeowners or renters policy, and that policy may not reach claims about the house you rent out. On TDI's standard homeowners form (HO-B), personal liability does not apply to injury or damage "arising out of the rental or holding for rental of any part of any premises by an insured," apart from narrow exceptions, or arising out of a house an insured owns and rents to others that the policy does not list as an insured location (HO-B, Section II exclusions 1.c and 1.e). Company forms vary, so ask, and make sure the rental's own policy carries liability.

Lost rent instead of living expenses

A homeowners policy pays the extra cost of living elsewhere while your home is repaired. Once the house is rented, the loss that matters is the rent that stops. The TDP-3 covers "fair rental value, meaning the fair rental value of that part of the dwelling on the described location usually rented to others by you, less any expenses that do not continue," when a covered loss makes the dwelling untenantable (unfit to live in). It never pays because a tenant stops paying or the house sits empty between tenants. How much, and for how long: Loss of rent coverage for Texas landlords.

Your belongings, and your tenant's

What you take with you is covered, if at all, by the policy on your new home. What you leave at the rental is different. The TDP-3 counts "refrigerators and stoves that you own as a landlord" as part of the dwelling, and covers other personal property "owned or used by you or members of your family residing with you" at the property (TDP-3). Theft is narrow on a dwelling policy: the TDP-3 excludes theft of property that is not "an integral part of any structure," and some insurance companies offer limited theft coverage as an option.

Your tenant's furniture, clothes and electronics are not on your policy. TDI tells renters: "Your landlord's insurance won't cover your personal items" (TDI, Renters insurance). See Landlord vs renters insurance in Texas.

Deductibles, the roof and the dwelling limit

A new policy is a good moment to check the numbers you set years ago. Many Texas policies carry a separate wind and hail deductible, often a percentage of the dwelling limit (the amount the house itself is insured for) (Texas wind and hail deductibles, explained). Some settle an older roof at actual cash value (after depreciation) rather than replacement cost (Roof ACV vs replacement cost in Texas), and an older roof can affect which companies will insure the house and what they charge (How old can a roof be to insure in Texas?). And the dwelling limit should reflect what rebuilding would cost today, not what the house would sell for. What a DP-3 covers and leaves out, in full: Texas landlord insurance: what a DP-3 covers.

When to make the switch

Before you move out, not at the next renewal. Pick one date, the day the house stops being your home, and have the landlord policy start then. Tell the insurance company or your agent whether the house will sit empty before the tenant arrives, or be repaired or painted first.

Don't leave a gap. TDI's advice: "Never cancel a policy until you get your new policy or a written statement of coverage" (TDI, Shopping tips). Ask the homeowners insurer to cancel effective the new policy's start date.

The refund. The old insurer refunds the part of the premium for the days you didn't use. The rules and deadlines are in How to switch rental insurance in Texas.

If the house will be empty for a while. A homeowners policy may stop covering the house soon after you move out. On TDI's standard homeowners form (HO-B), if you move out and remove a substantial part of your belongings, the house counts as vacant, and coverage for the house "will be suspended effective 60 days after the dwelling becomes vacant" (Condition 13; company forms vary). TDI's homeowners guide lists 60 days' vacancy among reasons a company may not renew, and says: "Most companies stop your coverage if your house is vacant for that long. They usually don't stop your liability coverage, though" (TDI Home insurance guide). Landlord policies have their own limit: on the TDP-3, if the building is "vacant for 60 consecutive days immediately before a loss," fire, lightning and vandalism are not covered unless an endorsement (a form that adds or changes coverage) says otherwise. See Vacant rental property insurance in Texas.

If you still live there and rent out a room. That is a different situation. About landlord insurance, TDI says: "Ask your agent or insurance company if it makes sense to add it to a homeowner policy or get a separate one" (TDI). Renting to guests by the night or the week raises its own questions; see Short-term rental insurance in Texas.

Tell your lender, and decide who pays

If the house has a mortgage, the lender is part of this change.

• The lender must be on the new policy. The standard Texas deed of trust (the loan document that pledges the house) says the policy "must include a standard mortgage clause" and "must name Lender as mortgagee and/or as an additional loss payee" (Form 3044 07/2021, §5(c)). Send the lender the new declarations page, often through its online insurance tracking site.
• Decide who pays. With an escrow account, "the lender holds the part of the payment that is for insurance in an escrow account. Then, when the bill for the insurance is due, the lender pays it from the escrow account" (CFPB). If escrow pays, the new policy should bill your lender; if you pay it yourself, tell your lender first.
• Check your loan's occupancy clause. The current standard Texas deed of trust says the borrower "must continue to occupy the Property as Borrower's principal residence for at least one year after the date of occupancy, unless Lender otherwise agrees in writing, which consent will not be unreasonably withheld, or unless extenuating circumstances exist that are beyond Borrower's control" (Form 3044 07/2021, §6). Your own loan may say something different. Whether and when you may rent the house is between you and your lender, so read your loan documents or ask it.
• Check that the lender accepts the new insurer. Some Texas landlord policies are written by surplus-lines insurers, which are not licensed in Texas. Texas law lets a lender require a Texas-authorized insurer with a licensed resident agent (Ins. Code §549.056(b)). But Texas's collateral-protection law expects that an eligible surplus-lines policy can meet a loan's insurance requirement (Fin. Code §307.052), and the standard Texas deed of trust says the lender won't disapprove your choice of insurer unreasonably (Form 3044 07/2021, §5(a)). Check your loan documents, or ask the lender in writing before you switch. Details in Texas rental insurance: mortgage and escrow.

A short checklist

• Insurance company or agent told, before you move out, that the house will be rented
• Landlord (dwelling) policy starting the day the house stops being your home
• Liability on the new policy, at a limit you have chosen
• Loss of rent (fair rental value) on the policy, and how long it lasts
• Both deductibles in dollars, and how the roof is settled
• Homeowners policy cancelled effective the same day, in writing
• New policy for the home you are moving into
• Lender named as mortgagee, sent the new declarations page, and told who pays
• Renters insurance in the lease, if you want the tenant to carry it

AIV Insurance is an independent insurance agency in Texas for landlords and rental owners. We are not an insurance company, and claims are filed with the insurance company named on the policy. If your home is about to become a rental, reach us through the contact page or at hello@aivinsurance.com, and we'll go through the change with you. It is easiest before the tenant moves in.