Finding and maintaining the right property and liability insurance for your vacation rental can be a challenge. Most vacation rentals are located in high-risk areas, such as low-lying beach towns or in national forests, and that alone can make finding insurance difficult. Add to that the fact that the property is rented out on a part-time basis and things can get really complicated. Here are a few basic rules to follow to protect you and your property from insurance nightmares.
Rule One – Honesty is the best policy
It is imperative that you are completely honest with your insurance agent about your intention to rent out your property in the short term. If a guest staying at your property causes damage or files a lawsuit against you, your insurance agent will closely monitor your rental activity. Failure to disclose that your property is a vacation rental may void your insurance policy and leave you fully exposed. Be honest from the start. Sure, it means a higher premium, but it’s not worth risking your savings.
Rule Two – If you don’t succeed at first, try again
When buying insurance, start with the companies your current homeowners and auto insurance policies have. It is always cheaper to have your coverage with one company. But don’t be surprised if you get rejected. Holiday rental insurance is a specialized market and most traditional companies will not have what you are looking for.
Ask your real estate agent for a referral and contact other landlords in your area. They will probably have different recommendations between them and one of the companies will be a good fit for what you need.
Rule Three – Ask the right questions, give the right answers
It’s important to use the right language and ask the right questions when speaking with an insurance agent. Never tell your real estate agent that your home will be vacant. The correct term to use is “unoccupied”. A vacant property is a red flag that will deter most insurance companies.
Vacation rental insurance usually falls under the “surplus lines” category. The companies that specialize in this type of insurance are Lloyd’s of London, AIG, Lexington and Allied Insurance. If your current insurer can’t cover your rental, ask them for a referral for excess lines.
Ask your insurance agent how much liability coverage you should carry. The minimum is usually about $1,000,000, but the amount can change based on your financial situation. It’s just common sense, if you have more to lose, you want more liability coverage.
You will be asked for the name of your property manager and you should be prepared. If you are a “rent by owner” and you are asked who manages your property, give them the name of your housekeeper or handyman. The insurance company will hear that someone is available in case of an emergency. If you haven’t set up a third-party contact, you may be raising another red flag.
Rule Four – Check the financial status of your insurance company
There are hundreds of insurance companies trying to land your business. If you come across a company with rates and terms that are too good to be true, be very careful. There really are “fly by night” insurance companies out there and if there is a flood or earthquake they can be wiped out financially.
The place to check the financial status of an insurance company is www.ambest.com. Type in the name of the insurance company and you can get some history of that insurance company, how long they have been in business and what their financial status is. What you’re really looking for is an A-rated company. Don’t go back to grade school and think B and C are good. You really want an A-rated insurance company.
Insurance is a part of vacation rental management where you can’t afford to cut corners. There are too many things that can go wrong and the term “better safe than sorry” is the most important rule of the insurance game.