Vacation Rental Insurance: 10 Important Items to Consider
Written by Darren Pettyjohn at Proper Insurance
In an effort to better understand the ever-changing landscape of insuring vacation rental properties, RedAwning reached out to its preferred source, Proper Insurance® to create a top ten list owners should consider when selecting insurance coverage.
1 – Is your vacation rental insured to 100% replacement cost?
The thought of a total loss does not register with most vacation rental owners, but it should. Typically, the total loss of a property is due to fire, and 2018 was the worst year for fire losses in U.S. history. Many property owners were underinsured, and it’s simply because they were mis-informed on new construction costs. Make certain your insurance coverage has the appropriate building limits to rebuild “new for old”, or replacement cost valuation.
2 – Does your insurance policy have any limitations on damage caused by a renter or guest?
When you entrust your vacation rental to someone else, meaning rent it out on a short-term basis to a stranger, virtually all insurance contracts have limitations on coverage. For instance, “vandalism” is a criminal act, so if a guest vandalizes your property, there is typically no coverage or an exclusion included in the policy. Find out exactly what limitations or exclusions exist in your policy in relation to damage by a guest.
3 – Does your liability insurance coverage extend off the premises?
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 if a guest was mugged or assaulted in the area off the property, and the owner did not provide adequate warning, the owner could be found liable. Or, if a guest assaults someone else; perhaps a neighbor, the owner could be found liable. It’s important to understand the physical coverage territory and how it relates to your liability coverage.
4 – Does your liability insurance coverage include 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 guilty. 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.
5 – Is there an “ordinance or law” coverage enhancement in your insurance policy?
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 was 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.
6 – Does your insurance policy cover lost business income?
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.
7 – Does your insurance policy cover back-up of sewers and drains?
A common claim at vacation rentals is the back-up of a sewer or drain, and it’s simply not covered under typical home insurance. In order to have coverage, you must have an endorsement to add this coverage back into the policy. Make certain you have this endorsement with a coverage limit of $25,000.
8 – Does your insurance policy have full coverage limits on theft?
Theft is rare, but when this occurs, it usually results in a complete loss. Thieves take everything. Most insurance policies have a limit on theft when the property is entrusted to others or rented short-term. Verify in your insurance contract that there is no special limit on theft coverage and that you are only subject to your contents or personal property limits found in your declarations page.
9 – Does your liability extend to amenities such as hot tubs, pools, bicycles or kayaks?
Not all vacation rental property owners offer amenities such as hot tubs and bicycles, but the ones that do must verify their liability coverage extends over these amenities. A recent jury in Alabama awarded $11.6M to a plaintiff in regards to a swimming accident at a short-term vacation rental. Amenities can also include exercise equipment, trampolines, recreation areas, fire-pits, docks, and so much more.
10 – Does your insurance policy cover bed bug infestation?
Bed bugs are an unfortunate reality in the hospitality business and vacation rentals are no different. All home insurance excludes coverage for infestation outside of collapse, so an endorsement is needed. Make certain your endorsement covers both the extermination of the bed bugs, and the resulting lost business income.
If you are uneasy with the answers you are getting from your insurance agent, or would simply like a free insurance consultation, please reach out to Proper Insurance® today. www.proper.insure/redawning