Sunday, June 23, 2013

The Case for *Real* Vacation Rental Insurance

Like many VR owners, when I bought my first short term rental home in 2002 I got a traditional mortgage and traditional home insurance.  I figured that the insurance would cover us for most problems (house fires, etc.) and I had a good umbrella liability policy that I thought would cover me in the event of a lawsuit.

In recent years I've learned that my insurance policy is not adequate to cover a house that is rented 70% of the time, near a fault line, sometimes subject to 100 mph winds, on a cliff, and typically has 30 to 40 different families living in it over the course of a year.

What is wrong with my traditional home insurance policy? Several things:
  • almost all home insurance policies deny payment for any loss associated with running a business in a home.  Although renting a few homes is not considered a business in the traditional sense, or for zoning purposes -- it is likely that short term rental activity would be considered to be a business by an insurance company.
  • vacation rentals often have special amenities -- hot tubs, swimming pools, boat docks, stairs down the sides of cliffs -- that offer risks to guests that most homes don't.  Traditional policies may balk at paying a claim by a guest that is injured while using such amenities, and umbrella liability policies may not cover you either.
  • many of us make substantial investments in our vacation rental homes that are associate with short term rental usage, and depend on the income the home produces to pay for such amenities.  What happens when the income stops due to a fire or any other loss event.  Traditional home insurance policies don't cover loss of income from your home.  Policies designed for short term rentals will often offer this coverage.
  • If a guest steals a TV, are you covered.  Under a traditional home policy - probably not.  You need a policy that is designed to cover this type of loss.
These are just some examples.  If you have traditional home insurance, ask your agent if coverage for short term rental usage is explicitly stated in the policy.  Ask your agent if you are cover for loss of income, or theft by a guest, or any  of the other exposures you might have that are unique to short term rental usage.

Then talk to a company that offers policies designed for vacation rentals.  You'll see a difference.

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