Congratulations! You’ve done everything you can to make your property the perfect vacation rental for a lucky guest. The furniture is perfectly placed, the atmosphere is suitably cozy, and you’ve even written the ideal ad for your favorite vacation rental websites. In fact, about the only thing you might not have given much thought to is the issue of insurance.
“That’s okay,” you’re probably thinking to yourself, “My homeowners insurance will cover it, right?”
Not necessarily, say executives at Proper Insurance, a company that specializes in selling insurance for vacation rentals.
It all depends on how you run your rental, Proper Assistant Manager Michael Grimland says. There’s a fine line between what’s a business and what’s a casual rental situation, of course, but it doesn’t take much to cross it.
If you’re renting it more than a few nights a year, Grimland says, “you need to understand you’re running a business. The problem with homeowners policies is that they have a standard business exclusion built into them. They can deny any claim that comes their way.”
Part of the challenge vacation rental owners face in finding answers to what coverage they need is because the industry is so relatively new, Grimland says. As a result, many older companies don’t have specialized policies meeting owners needs. Some allow add-ons, however, that will extend coverage.
Regardless of which company you choose, your policy should include coverage for the following important issues, Prosper National Sales Manager Nick Massey says.
This coverage for the home itself should run the range from simple claims like a tree falling on the structure to more unexpected risks including fire, theft, and destruction. Homeowners insurance might work if you only rent out the property a few nights a year or for a special event like the Kentucky Derby, for example. A landlord policy might also make sense if you have one tenant for an extended period. Proper sells its clients a commercial package policy that covers business use of the home as a rental.
Massey said the structural coverage proved useful when one of his company’s clients played host to a renter who held a party for 200 in the policy holder’s cabin in the woods. By the time the festivities were over, the house was destroyed. Similarly, an Ocean Grove, Australia woman was relieved to discover she had the coverage after New Year’s Eve celebrants dropped sparklers in her home and left $14,000 in burn marks on her hardwood floor.
If you have more than one structure on your property – like, a home and a detached garage – look into coverage for the additional dwelling, which may vary from standard structural coverage.
This part of the policy typically covers everything inside the structure other than appliances. Think of it as covering anything you can throw in a U-haul truck, Massey says.
Although Grimland estimates that 30% of the claims he hears about are water related due to plumbing issues, damage and theft are also covered. That could mean the loss of a valuable painting or a guest’s dog ripping up your $10,000 sofa.
“90% of the travelers in the industry are wholesome people and won’t cause any problems,” Massey says. But there are exceptions. He recalled the case of one policy holder who returned to her rental and found that everything of value had been stolen.
If you have replacement value coverage for your contents, you’ll receive a payment to cover what it would cost to buy the item new. Cash value coverage pays a percentage of the value of your contents. Exclusions vary from company to company and policy to policy. Be sure to ask your insurance agent exactly what the policy will cover.
While most people think about liability just covering someone slipping in the tub or falling down the stairs, it can extend far beyond your home’s interior, depending on your amenities. Swimming pools and watercraft mean more places for people to get hurt.
“If you offer bikes, no one thinks about the liability that occurs if a guest gets a flat tire and they crash. You’ve provided that amenity, that’s part of the short term rental. So, you’re on the hook for that.,” Grimland says, adding, “You have to make sure that liability coverage extends to those amenities.”
As Massey puts it, “crazy, random liability claims happen. Someone slips on your stairs and falls down. If you don’t have liability insurance, you’re on your own.”
There are times when the injury is small enough that your guest is less interested in litigation and more interested in getting their treatment expenses covered. That’s where medical billing coverage comes in. Although it’s typically included in liability coverage, it never hurts to double check and make sure.
It’s also important to note that the free insurance offered by some rental vacation companies may not be enough to give you the coverage you need because the policy doesn’t have your name on it. Those policies may have limits of millions of dollars, but they have to cover a large pool of users and do not specifically pertain to you and your needs. When the policy is in your name, Massey says, “you have full policy rights and the carrier has to defend you.”
One of travel’s great ironies is that some of the most attractive destinations are also the most prone to natural disasters. In Florida, it’s hurricanes. In California, it’s earthquakes. In New York, it’s snowstorms. Because they’re a known but unpredictable risk, they often aren’t covered in most homeowner or vacation rental policies. Since you can’t move your property to avoid the risk, you should consider buying add-on coverage because post-disaster cleanup quickly gets costly.
Ask your agent for their recommendations for policy add-ons based on which natural disasters your region is prone to.
The best way to determine what your coverage is and what you might need is to review what you already have.
“Homeowners need to open their insurance policy, understand it, and ask the tough questions to their agents,” Massey says.
Although the need for vacation rental insurance is relatively new, getting it doesn’t have to be complicated, Grimland says.
“Insurance is not nearly as complex as people make it out to be. What you’re paying for is a contract. The quality of that contract is largely reflected in the premium. The more you pay for that contract, the higher quality that contract is and the less things are excluded. If you’re getting a really good deal that sounds too good to be true, it probably is,” Grimland says, adding, “Get answers in writing and double check that the policy agrees with what you got in writing.”