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 can only make finding insurance difficult. Add to the equation that the property will be rented part-time and things can get a lot complicated. Here are some basic rules to follow to protect yourself 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 in the short term. If a guest staying at your property causes damage or files a lawsuit against you, your insurance agent will handle your rental business. 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 beginning. Sure, it will mean a higher premium, but your life savings aren’t worth risking.
Rule two: if you are unsuccessful at first, try again
When shopping for insurance, start with the companies that have your current home and auto policies. It is always cheaper to cover your coverage with just one company. But don’t be surprised if they turn you down. Vacation rental insurance is a specialized market and most traditional companies will not have what you are looking for.
Ask your agent for a reference 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 is important to use the correct language and ask the correct questions when speaking with 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 away most insurance companies.
Vacation rental insurance generally falls under the category of “surplus lines.” Companies that specialize in this type of insurance are Lloyd’s of London, AIG, Lexington and Allied Insurance. If your current insurer cannot cover your rental property, ask for a surplus lines reference.
Ask your insurance agent how much liability coverage to carry. The minimum is usually about $ 1,000,000, but the amount may change based on your financial situation. It is common sense, if you have more to lose, you will want more liability coverage.
You will be asked for the name of your property manager and you should be prepared. If you are a “rental owner” and they ask who manages your property, give them the name of your housekeeper or maintenance man. 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 generate another alert signal.
Rule four: check the financial status of your insurance company
There are hundreds of insurance companies trying to take over your business. If you come across a company with rates and terms too good to be true, be very careful. There really are insurance companies that “fly at night” and if there is a flood or an earthquake, they could financially disappear.
The place to check the financial status of an insurance company is www.ambest.com. Write down the name of the insurance company and you can get a little history of that insurance company, how long it has been in business and what its financial status is. What you are really looking for is an A-rated company. Don’t go back to elementary 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 can’t afford to cut costs. There are too many things that can go wrong and the term “prevention is better than cure” is the most important rule of the insurance game.