Owning a second home or vacation rental is an upgraded version of the American dream. However, like the primary property, the vacation rental property also has expenses, maintenance costs, and potential liability risks.
The key question for homeowners is usually this: Do I need separate insurance for homeowners vacation rental property?
Questions about the scope of coverage apply to the regular policies that homeowners use to insure their primary homes. Will it also cover the second home used as vacation rental accommodation?
If you plan to rent the vacation home for a financial gain, that is considered a business activity and is probably not covered by your homeowners policy. Even if you don’t get a lot of money from this rental, insurance companies consider this transaction a business activity, so they may also exclude vacation rental properties from coverage.
An important distinction is made when you have a vacation home that you do not rent to third parties but rather lend to your family and friends. Most likely, an insurer will not classify this type of home as rental property and may be covered by a separate homeowners policy.
Insurance policy for condominium / association
If the property you are using as vacation rental accommodation is located in a building or community and is covered by a general or group policy, find out what is covered. Most likely, the policy will offer liability coverage on the general premises or on the outside of the building, but not on the inside of your property. If there is a problem within your vacation rental accommodation, it will be your responsibility.
Liability insurance or supplemental liability insurance
A personal civil liability policy or personal supplementary policy provides coverage to the people in your family group against situations of personal negligence or civil liability. Since a vacation rental property is considered a business activity, these policies would generally not be valid.
According to the Insurance Information Institute , “If you plan to regularly rent your second home, you may need separate business coverage or a landlord’s policy.”
What type of policy should I buy?
Talk to your insurance agent about how to get the right policy for your situation. If you only rent the property occasionally, you may be able to request that an endorsement or rider be added to your homeowners or condo insurance policy. If you rent more frequently, I may recommend a separate business policy or commercial liability policy.
As you do with your homeowners policy, you should consider purchasing additional coverage for flood or earthquake risk, if necessary.
How much does vacation rental insurance cost?
The cost of vacation rental insurance depends on several factors. These include your deductible, the cost of replacing the home, the location of the property, the amenities you have, and the amount of coverage chosen. Vacation rental property insurance policies tend to be more expensive than primary home insurance, as the former remain vacant more often and there is a greater chance of a claim being filed.
If you don’t have any or don’t have the correct insurance coverage, you may be taking on a great financial risk. Talk to your insurance agent to learn more about the type of coverage that can protect your vacation rental property.