CONTRIBUTED BY PROPER INSURANCE
What insurance options do I have to insure my vacation rental?
As the owner of a vacation rental property, you have three insurance options. You can purchase a homeowner’s policy, a dwelling landlord policy, or a commercial policy. All three options vary significantly with regards to coverage and pricing.
What are the main differences between homeowner’s insurance, dwelling/landlord insurance, and commercial insurance with regards to vacation rental owners?
Homeowner’s Insurance: A homeowner’s policy is designed to insure an owner-occupied primary residence, not a secondary or vacation rental property. If a vacation rental doubles as a primary residence, typically an Airbnb room rental, then there are home-sharing endorsements homeowner’s policies offer with limited coverage. A homeowner’s policy would be the least expensive option, but it is because it carries the least amount of coverage. It has limitations on damage, theft, no business income, and no commercial liability.
Dwelling/Landlord Insurance: A dwelling/landlord policy is designed for a secondary property, or a non-owner-occupied property. It was originally developed for rental properties or secondary investment properties. Many vacation rental owners choose this type of policy, but it comes with some significant gaps in coverage. It has limitations on damage from a guest, no business income, and the liability does not extend off-premise. A landlord/dwelling policy would be similar in price to a homeowner’s policy.
Commercial Insurance: A commercial policy is designed for a business and carries four areas; building(s), contents, income, and liability. Commercial insurance fills the gaps that homeowners and dwelling/landlord policies have with regards to vacation rentals. It would be considered a superior policy, that comes with more stringent underwriting and a higher premium.
If I buy commercial insurance, do I also need to have homeowner’s insurance?
No, a commercial policy is comprehensive, so there would be no need to have both.
Are all commercial policies the same?
No, commercial policies vary significantly from a coverage standpoint. Every insurance carrier has different limitations, exclusions, and coverages. A few important coverages to understand are damage caused by a guest, liability off-premise, liquor limitations, replacement cost valuations, cause of loss forms, business income, ordinance or law, and back up of sewers and drains.
Why is commercial insurance more expensive than homeowner’s and dwelling/landlord insurance?
Commercial insurance offers more coverages, so in turn pays out more in claims. This increase in coverage comes with a higher premium. Insurance is a transfer of risk from the policyholder to the insurance carrier. Commercial insurance simply allows the consumer to transfer more risk.
Are amenities such as swimming pools, hot tubs, and bicycles covered under liability insurance?
This all depends on which type of policy you carry on your vacation rental. Homeowner’s insurance carries personal liability, dwelling/landlord insurance carries premise liability, and commercial insurance carries commercial general liability. The only way to know for sure, is to have your insurance agent show you in your policy where the coverage exists.
What does liability off-premise mean?
Most property owners think of a ‘slip and fall’ scenario regarding a guest’s injury on premise, maybe in the shower or on the stairs. However, liability suits involving injuries off-premises often find their way to the property owner as well. An example of this would be the bicycle. If a vacation rental furnished bicycles, and a guest was injured on the bicycle off the premise, there would be no liability coverage for the owner, unless their insurance extended off-premise. Other examples would include dog bites, assault, or muggings.
What is business income coverage?
In the event of a covered cause of loss, say from water damage- typically vacation rentals will not be rented during the restoration period. This can take 1 week to 18 months depending on the extent of the damage. An owner needs to protect the income the short-term rental generates, and the only way to do it comprehensively is with ‘business income’ coverage, not ‘loss of rents’. There is a big difference, so make sure and confirm you have business income coverage with actual loss sustained valuation.
Does liability insurance cover legal defense costs?
Unfortunately, the U.S. is a litigious society and property owners can be sued for just about anything. All it takes is a complaint and demand letter to be filed. Granted, many of these complaints are frivolous, but lawyers and your defense are extremely expensive, even if you are found not liable. Many times, legal defense can cost more than the actual demand itself. You must confirm your liability coverage not only covers certain losses, but also includes legal defense above the occurrence limits.
Why is ordinance or law coverage so important?
Ordinance or law is an often-over-looked coverage enhancement that most insureds do not have. Most cities have ordinances that state if your property sustains damage constituting 50% or more of the homes rebuild value, you are required to demolish the entire structure and re-build 100% new. If your property were insured for $500,000 and had a kitchen fire that damaged 50% of your property, the insurance company would only pay you $250,000. However, the ordinance would still require you to demolish and rebuild, costing you the remaining $250,000 out of pocket. The only way to have coverage for this is an ‘ordinance or law’ enhancement up to full building limits.
Article Author, Proper Insurance
Proper Insurance offers short-term rental insurance, with over 30,000 policies written in all 50 states. Backed by Lloyd’s of London and exclusive endorsements from vacation rental leaders such as HomeAway & Vrbo, the company is built on world-class insurance coverage. Our policy covers vacation homes, townhouses, condos, duplexes, cabins, cottages, apartments and more. With expert vacation rental underwriters we can tailor a policy specific to your short-term rental property.