If you are renting out your vacation home, one of the first critical decisions you’ll need to make is how to insure your property against damage or theft.
You’ll want to shop around for your policy among different companies to find the best fit for your needs. Before you do, here is a primer with some of the key details involved with insuring your vacation rental so that you can make a knowledgeable decision.
Understand the laws
Different municipalities have different restrictions on vacation rental homes, so you’ll need to read up on the ones that affect you. “Some areas require you to operate like a hotel and some do not,” says Gabrielle Lupton, insurance resource director for Obrella.com.
If you intend to rent out your home regularly, a homeowner’s policy will likely not cover theft or damage associated with your guests. Instead, you’ll need to invest in a separate commercial or landlord insurance policy. If you don’t and the insurance company determines that you’ve been operating a business, any future claims can be denied.
“For property owners who rent on a regular basis, the normal homeowner’s policy won’t be sufficient, mainly because most homeowner’s policies exclude losses resulting from business operations,” says Paul Dzielinski, senior vice president at Beach Re, a reinsurance broker. “A business policy is needed.”
Also consider that if you are renting out your condominium or house through a property management company, the company may have rules regarding minimum requirements for insurance.
Parsing different insurance coverages
Commercial insurance policies have two key components of coverage for both property and liability. Property coverage protects the physical structure and belongings in the event of a fire or other damage; liability coverage protects you in case a guest is injured and sues you for damages.
Your policy should include the following coverages:
- Replacement cost for the structure and your personal property. “Be sure to select enough casualty insurance so that you can rebuild the property if it were to burn down or otherwise be destroyed,” says attorney Tom Simeone.
- Personal liability coverage. “Be sure to purchase sufficient liability insurance to protect from claims by renters or others injured on the property–you can usually purchase up to $1 million and legally speaking, the more the better,” says Simeone.
- Loss of income coverage. “This protects the homeowner if tenants cannot occupy the home due to a covered property loss,” says Dzielinski.
- Supplemental coverage for pets, liquor liability and damage cause by the tenant, including theft of the owner’s personal property.
- Umbrella policy. A personal umbrella policy (PUP) gives you additional liability insurance above your existing coverage. “If you are a high net-worth individual or family, consider buying an umbrella policy to protect your assets from lawsuits by tenants,” he says.
- If the rental is seasonal and the home is vacant the remainder of the year, “make sure there are no coverage restrictions due to vacancy,” Dzielisnki says.
- If there is a swimming pool, hot tub, trampoline, or other “attractive nuisance” on your vacation rental property, be sure to inform your insurance representative to see what coverages are possible, since these present additional risks, says Erika Sommer, a writer for QuoteWizard.
- Flood, wind damage, or hurricane insurance is something you may want to purchase if your rental is in an area prone to these types of disasters. Damage as a result of flood, wind, or hurricanes is not typically covered by a standard commercial policy.
How to find an agent
Shopping around for the right commercial insurance agent could save you money and hassle down the road. If possible, find someone who specializes in insuring vacation rental properties and can help you make an informed decision. You may want to ask other people who rent out their homes for a referral.
Make sure that when you’re comparing policies, you compare prices based on equal coverage limits. The insurance company’s financial strength and stability matters, too. Check your company’s ratings from one of the four independent agencies, A.M. Best, Fitch, Moody’s and Standard & Poor’s before you make your final decision.
In the event of damage or theft
You’ll want to take measures to protect yourself against damage from guests. Here are some precautionary measures to take now, according to Tammy Barry, director of sales and marketing for Heritage Harbor Ottawa Resort in Ottawa, Illinois:
- Catalog and document all personal belongings in the unit
- If you use a rental management company, know the firm’s replacement policy and damage charges.
- Owners should always have a credit card of the guest’s on file.
- Post a copy of policies and instructions in the rental property to prevent misuse or abuse.