This is a big topic of discussion for any host looking to rent out their home. Whether you occasionally rent out your primary residence or have a full-time vacation rental property, knowing your exposure and ensuring you have adequate insurance is of the utmost importance.
Standard home insurance policies do not provide coverage if the property is being used as a vacation rental. Insurance carriers can essentially deny any property or liability claim if “vacation renting” is not disclosed. See Claims Denial Lawsuit
In defense of insurance carriers, home insurance is designed to provide coverage for owner occupied properties, and their underwriting and pricing reflects this. Vacation renting a home has different property and liability exposure.
Insurance is complicated and often difficult to understand. Tripz is not a licensed insurance entity, endorsing a specialist licensed in all 50 states delivers the value we want for our Hosts. Proper Insurance is a Coverholder at Lloyd’s of London, is the leading insurer of vacation rentals in the U.S., and has diligently answered our insurance FAQ’s.
When I call my insurance agent what questions should I ask? This is the most important FAQ. You must ask specific questions and get the answers in writing from an underwriter, not an agent. Your insurance agent does not pay your claim, an underwriter representing the carrier does. Two questions to ask verbatim are as follows: (1) If I regularly entrust my property/home to a paying vacation rental guest for a period of less than 30 days, and that guest damages or steals my property, do I have property coverage? (2) If I regularly entrust my property/home to a paying vacation rental guest for a period of less than 30 days, and that guest is injured on my property, do I have liability coverage?
My agent told me I’m covered for occasional vacation rentals? Many home insurance policies do allow for the “occasional” rental of your property, but the fine print is not explained. For coverage to apply, the renter must consider your property their place of “residence”, where they reside or live. When someone vacation rents your property, this is not the guests place of residence, it’s where they dwell temporarily for a night, week, or month. In a long term-term lease rental situation, the rental may in fact be the renters place of residence, but not a vacation rental. Insurance agents do not pay claims, underwriters do, so make sure and get things in writing as referenced in the above FAQ.
I carry a DP landlord policy so I’m covered? Many agents will sell Hosts a DP landlord policy, but coverage is limited. Landlord policies are designed for a property that has long-term tenants, not short-term guests. It carries liability coverage that does not extend off premise, carries no advertising injury coverage, carries no business income coverage, and lacks certain property coverage enhancements. Liability coverage that extends off premise is essential as the Host can ultimately be held liable for their guest’s actions. Landlord insurance is better than a homeowner’s policy, but lacks what a commercial policy offers.
My vacation rental is not a business, so why do I need commercial insurance? Many would not consider a vacation to be a business, but regardless, it’s still the best way to insure one. Commercial insurance has no “occupancy restrictions”, so the property would have coverage when it’s being used personally, and commercially/vacation rented. It also carries commercial general liability which extends beyond the premise, carries advertising injury and business income. One of the problems with vacation rentals is the triple use. Sometimes it’s rented, sometimes it’s used personally, and sometimes it’s unoccupied. Commercial insurance has the horsepower needed to cover all three.
How do I purchase commercial insurance for my vacation rental? You need to find an insurance carrier that understands vacation rentals and insures them commercially. Not all commercial insurance is created equal. Unless the commercial policy is specifically endorsed and enhanced then there will be coverage gaps as well. You will find limits on theft by a renter, limits on ordinance and law, limits on back-ups of sewers and drains, and much more. There are several carries in the U.S. specializing in vacation rentals, with all offering slightly different coverages. A good rule of thumb would be the less expensive the policy, the higher likelihood for coverage gaps. Many local agents will have access to these commercial policies, but you must be certain it’s commercial and not a DP landlord. The Proper Insurance® policy is commercial as well.
If I get commercial insurance do I keep my homeowners or landlord insurance? If the commercial policy is written correctly, then No, it should entirely replace your current coverage. There would be no need to manage and/or carry two policies.
If I have commercial insurance am I covered when I stay at my vacation rental? If the commercial policy is written correctly, then Yes, you would have full policy coverage while the property is being used personally. In other words, no covered loss, i.e. fire damage or slip and fall, would be excluded as the result of the property being used personally, versus commercially.
Can I insure my vacation under an LLC, or Partnership? If you are insuring it commercially, then Yes. Commercial policies can typically have a Sole Prop, LLC, Corp, Partnership, Trust, or IRA as the named insured. At Proper we are seeing more and more of this as Hosts like to keep their vacation rental separated from their personal assets.
Why don’t the big American insurance companies insure vacation rentals commercially? For an insurance company to be profitable it must collect more premium than it pays out in claims. Most insurance companies see vacation rental properties as “high risk”. Lots of foot traffic and unknown variables. They simply don’t want to take on the risk and insure them commercially. Some will insure them on a landlord policy, but that’s because the coverage is limited as explained in an earlier FAQ.
I have so many questions and my local agent is simply not giving me clear answers? We encourage you to call and talk to an expert at Proper. We insure vacation rentals in all 50 states and are happy to answer your tough questions. We often provide current coverage comparisons and will take the time to explain all the exposure involved with vacation rentals. Proper Insurance – (888) 631-6680.