As the economy sputters, inviting someone to live with you in the home you own may seem like a clever way to cut costs. But check with your home insurance company to make sure everyone has proper insurance coverage – the wrong move could spell trouble, insurance experts say.
When you own a home and invite somebody to live with you, it may change how your home insurance company views you. And that could affect your insurance coverage.
For example, companies such as Security First Insurance – which insures homes in Florida, a state hard-hit by foreclosures and a steep unemployment rate – may be reluctant to offer standard home insurance if you have several roommates.
"If you have a three-bedroom home and move in three or four people, we won't write a homeowners policy," says Wendy Blitstein, director of underwriting at Security First.[
Instead Security First will require you to get a dwelling fire insurance policy, which covers specific things like damage from fire or lightning strikes, but won't cover you in case of a theft, she says. Protection from theft and other types of losses will have to be purchased in separate policies.
What if you only have one person move into your home? In that case, it probably won't affect your home insurance, Blitstein says.
Inviting a roommate into your home also can expose you to some liability risks.
Mario Morales, manager of corporate underwriting at MetLife, cites the example of allowing a roommate to have a pool party. If you aren't present but horseplay takes place and someone is injured, "you're not completely absolved of liability just because you're not involved in something."
You also could be liable if the person living with you owns a dog that bites someone, Morales says.
Insurance laws vary from state to state, and each insurance company has its own policy language. Morales says it's important to talk to your insurance agent, describe the roommate scenario you have in mind and ask which insurance options are available.
"Insurance companies are very open to working with customers as times are changing," he says.
When your new roommate moves in, make sure he or she purchases a renters insurance policy. If your home is swept away by a tornado or hurricane, your home insurance policy will cover both the damage to the structure and your possessions. If a thief breaks in and steals your valuables, you're covered.
However, without renters insurance, the person living in your home will be out in the cold under either scenario. Although you may own all the furniture, the person living with you likely has electronics, clothing and other personal possessions that quickly add up to big bucks.
Renters insurance covers both your roommate's possessions and any liability he or she might incur. Without such insurance, "a roommate should not assume that there is any coverage at all," Blitstein says.
Unlike homeowners insurance, the person living with you would be covered under your auto insurance policy if he or she occasionally borrows your car and gets into an accident.
However, it's important to check with your auto insurance company to make sure the roommate is fully covered, says Brandt Minnich, spokesperson at Mercury Insurance Group.
Minnich say some companies "may only provide the required state minimum liability limits for unlisted drivers operating a vehicle that is involved in an accident."
Others – like Mercury – provide coverage limits "that the named insured purchased, even for unlisted drivers using the vehicle that are not specifically listed as an excluded driver on the policy," Minnich says.
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