Finding and maintaining the right property and liability insurance for your vacation rental can be challenging. Most vacation rental properties are located in high-risk areas, such as low-lying coastal towns or in national forests, and that alone can make it difficult to find insurance. Add to the equation that the property will be rented out part-time and things can get very complicated. Here are some basic rules to follow to help 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 your property on a short-term basis. If a guest staying at your property causes damage or files a claim against you, your insurance agent will find out about your rental activity. If you have not disclosed that your property is a vacation rental, your insurance policy may be voided and you will be completely exposed. Be honest from the start. Sure, it will mean a higher premium, but it’s not worth risking your life savings.
Rule Two: If At First You Don’t Succeed, Try Again
When shopping for insurance, start with the companies that carry your current homeowners and auto policies. It is always cheaper to cover your coverage with one company. But don’t be surprised if they reject you. Vacation rental insurance is a niche market and most traditional companies won’t have what you’re looking for.
Ask your agent for a reference and check with other rental owners in your area. They will probably have several recommendations from each other 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 talking to an insurance agent. Never tell your agent that your property will be vacant. The correct term to use is “idle”. A vacant property is a red flag that will scare off most insurance companies.
Vacation rental insurance typically falls under the “surplus lines” category. 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 property, ask them for a surplus lines referral.
Ask your insurance agent how much liability coverage you should have. The minimum is usually about $1,000,000, but the amount can change depending on your financial situation. It’s just common sense, if you have more to lose you’ll 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 asked who manages your property, please provide the name of your housekeeper or maintenance person. The insurance company will want to know that someone is available in an emergency. If you don’t have a third-party contact set up, it could raise another red flag.
Rule Four: Check Your Insurance Company’s Financial Status
There are hundreds of insurance companies trying to get 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 insurance companies that “fly at night” and if there is a flood or earthquake, they could be wiped out financially.
The place to check an insurance company’s financial statement is www.ambest.com. Type in the name of the insurance company and you’ll be able to get a little history of that insurance company, how long they’ve 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 one area of vacation rental management where you don’t have the luxury of cutting 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.