"Better Safe Than Sorry"
Finding and maintaining the correct property and liability insurance for your vacation rental can be a challenge. Most vacation rental properties 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 into the equation that the property will be rented on a part-time basis and things can get really complicated. Here’s a few basic rules to follow to help protect you and your property from insurance nightmares.
Rule One – Honesty Is The Best Policy
It’s imperative that you be completely honest with your insurance agent about your intent to rent out your property on a short-term basis. If a guest staying in your property causes damage, or files a lawsuit against you, your insurance agent will get wise to your rental activity. If you haven’t disclosed that your property is a vacation rental, your insurance policy can be voided and you will be completely exposed. Be honest from the get-go. 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 have your current homeowners and auto policies. It’s always cheaper to umbrella your coverage with one company. But don’t be surprised if you get turned down. Vacation rental insurance is a specialty market and most of the traditional companies won’t have what you’re looking for.
Ask your agent for a referral and check with other rental owners in your area. They will probably have several 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 to an insurance agent. Never tell your agent that your property will be vacant. The correct term to use is “unoccupied” A vacant property is a red flag that will scare off 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 you rental property, ask them for a surplus lines referral.
Ask your insurance agent how much liability coverage you should be carrying. The minimum is usually about $1,000,000 but the amount can change based upon 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 need to be prepared. If you’re a “rent by owner” and you’re asked who manages your property, give them the name of your housekeeper or maintenance man. The insurance company is going to want to hear that someone is available in case of emergency. If you don’t have a third-party contact set up you could potentially 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 stumble across a company with rates and terms too good to be true, be very careful. There really are “fly by night” insurance companies out there and if there’s a flood or earthquake they could 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’ll be able to pull up 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 that B and C are any good. You really want an A rated insurance company.
Insurance is one area of vacation rental management where you cannot 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. If you would like the name of a good insurance agent or if you have any questions about vacation rental management please leave me a comment. Happy Renting!