Owning a second home or vacation rental property is an extension of the American dream. But just as your primary home has costs, upkeep and liability concerns, the same goes for your vacation rental property.
The operative question for property owners is usually: “Do I need separate vacation rental insurance for owners?”
The question of coverage applies to the usual policies property owners use to insure their primary homes. Will it still cover the secondary home used as a rental property?
If you’re renting out the vacation property for money, it’s considered a business activity and probably not covered by the homeowners policy. Even if you don’t earn a lot from the rental income, insurance companies still consider it a business activity and may even exclude vacation rental homes from coverage. An important distinction is when you have a vacation home that you don’t rent out but let family and friends borrow. An insurance carrier likely won’t classify that as a rental property, and it can be covered by a separate homeowners policy.
Condo/association insurance policy
If your rental is located in a building or community with a blanket or group policy, find out what’s covered. Most likely, the policy covers liability on the grounds or building exterior but not the interior of your property. If there’s a problem inside your rental home, that’s your responsibility.
Personal liability or umbrella insurance
A personal liability or personal umbrella policy covers people in your household for personal negligence or liability. As a home rental is considered a business venture, these policies generally wouldn’t apply.
According to the Insurance Information Institute, “If you plan to regularly rent out your second home, you may need separate business coverage or a landlord policy.”
What kind of policy should you get?
Talk to your insurance agent about getting the right policy for your situation. If you only rent out the property occasionally, you might be able to get a rider or endorsement on your homeowners insurance policy. If you rent out more frequently, a stand-alone commercial or business liability policy might be recommended.
Here is what the typical vacation rental property insurance policies usually cover:
Liability: Personal injury experienced by your guests or anyone at your rental property.
Contents and structure: The building and its contents are covered in the event of damage, theft, fire, etc. It might also cover home amenities such as a swimming pool, bikes and small watercraft.
Lost income: If your property sustains damage and can’t be rented for a period of time, this portion of the policy reimburses you for that lost income.
Just like your homeowners policy, you should consider getting additional coverage for flood or earthquake risk, if needed.
How much does vacation rental insurance cost?
The cost of vacation property rental insurance depends on a number of factors. They include your deductible, the replacement cost value of the home, the location, amenities and amount of coverage selected. Vacation rental insurance policies are usually more expensive than primary homeowners insurance, because the home sits vacant more frequently and there’s a higher likelihood of filing a claim.
If you don’t choose to get vacation rental insurance coverage, you may be taking a big financial risk. Talk to your insurance agent to find out more about the coverage you need to protect your vacation rental.