If you own a second home or a vacation property, consider turning the residence into a money-maker by renting it out to individuals visiting the area on vacation. A vacation rental can help you offset the cost of a second mortgage, help pay for taxes on your second property, and ensure that your secondary residence doesn’t sit empty for too long.
You will need to ensure that your investment is protected before you make the decision to rent out your second home. This means evaluating your insurance options and securing the right policy to help meet your vacation rental needs in the future.
The Usual Property Policies
One of the questions that new landlords face is whether or not one of the usual policies that property owners take out on their residences will provide sufficient coverage. There are three primary types of insurance used by property owners: homeowners insurance, condo association insurance, and umbrella insurance.
A homeowner’s insurance policy is designed to provide financial compensation for damages that occur through normal living activities. This means that the person who owns the property must be residing in the property for a homeowner’s policy to apply. Vacation rentals are considered business properties instead of residential ones, so your homeowner’s policy might not provide the coverage you need.
Condo insurance coverage can vary from one community to another. Typically, these blanket insurance policies only protect the exterior of the building and the grounds, not the interior of each unit. You will need to add secondary insurance to your condo policy to enjoy total coverage.
Umbrella policies typically deal with the issue of excess liability. If a resident of your household is negligent, an umbrella policy could cover damages that ensue. Since renters are not considered residents, an umbrella policy may not cover their negligence.
Policies You Need for Rentals
Now that you understand why traditional property insurance policies may not provide adequate coverage, it’s time to identify the types of policies that you do need to secure for your vacation rental. There are three primary policies to consider: liability insurance, content and structure insurance, and loss of income insurance.
Liability insurance policies provide protection against any personal injury lawsuits that might be brought against you by a renter. A comprehensive liability policy prevents a guest’s injury from completely bankrupting your family, which makes liability insurance one of the most important policies you can obtain.
Be sure that you let your agent know the liability policy will be for a business so adequate coverage levels can be obtained.
Content and Structure Policies
Content and structure policies target the furnishings and actual structure of your second home against loss. These losses could come as a result of theft, fire, or negligence. You can file a claim with your insurance company to replace any contents that become lost or damaged as you rent your property, or to help make necessary repairs.
Loss of Income Insurance
Loss of income insurance is another critical policy you will want to have in place before you start renting out your second home as a vacation property. Renters might cause significant damage that leaves you unable to rent your property to new occupants until substantial repairs are completed. This will result in a loss of income. The right insurance policy can reimburse you for lost income to offset financial losses.
The insurance requirements for a vacation rental property are complex. They differ from the insurance needed to protect your primary residence. You will need to work closely with an experienced insurance agent to secure the policies you need to protect your rental business.
Contact Callis Insurance to discuss insurance options for your second home before listing it as a rental property.