Vacation Rental Insurance: Cost, Coverage & Quotes

What are your thoughts on the value of insurance for vacation rental properties?

Vacation rental insurance is an important part of the vacation experience. It helps to protect your investment and provides peace of mind.

Holiday rental insurance protects you against the hazards of renting out short-term vacation rentals. Your insurance should cover the building and contents of your vacation rental home, as well as loss of revenue and your responsibility for damages caused by others. The average annual cost of a policy is $2,000 to $3,000.

Providers of Vacation Rental Insurance

You should look for a company that specializes in short-term rental insurance. Many homeowners insurance companies provide coverage designed specifically for real estate speculators with one or two modest homes. Look for a provider with a greater commercial insurance appetite if you have a larger portfolio of vacation rentals.

Here are five excellent vacation rental house insurance companies.

Nationwide

Nationwide provides personal and business insurance coverage in all 50 states and offers several discounts, including multipolicy discounts. Vacation rental property owners can get all personal lines of insurance, including home, auto, and umbrella policies in one location while also getting a commercial vacation rental property policy.

Nationwide is right for short-term rental property insurance where owners have a condominium with common grounds and a master association policy. Nationwide offers comprehensive condo rental policies with reasonable loss assessment pricing. Loss assessment is the amount a condo owner owed for homeowners association (HOA) master policy deductibles.

Allstate

Allstate provides the highest policy reductions. The company provides various types of personal insurance, including vehicle and house insurance, with bundle savings available. It was also one of the first firms to advocate homeowner sharing, in which the owner uses and rents his or her house.

For homeowners who have second homes that they rent out during the off-season, Allstate is the best option. Allstate Host Advantage is a cost-effective method to add short-term rental coverage to your current homeowner’s policy. The endorsement costs roughly $50 and provides limited coverage for personal possessions up to $10,000 while renting, as well as liability coverage up to the policy limits for the rental.

Farmers Insurance

Farmers Insurance is a kind of insurance that is sold is a reputable, nationwide provider of personal and business lines of insurance, including vacation rental insurance. It offers two different types of vacation rental insurance policies: one that is customized and one that is a prepackaged policy called Seasonal and Vacation Property Insurance.

Farmers is the best option for property owners in disaster-prone places like Florida, where policies are pricey and several insurance providers still don’t write much if any, insurance at all. Farmers’ prepackaged policy offers choices such as liability insurance, complete property coverage, and partial and whole loss coverage, and you may customize your policy by adding coverage. Insurance Against Floods is also available via Farmers, which gives homeowners access to the National Insurance Against Floods Program (NFIP), which protects coastal homes.

Foremost insurance

Foremost Insurance is a lesser-known vacation rental insurance provider, it provides a diverse range of specialist coverage. Property protection, liability coverage, and any possible lost revenue coverage are all included in its vacation rental house insurance packages.

Foremost Insurance is ideal for vacation rental property owners who want to tailor a policy to their specific requirements in terms of usage, location, and coverage. For those looking for cheaper insurance, Foremost also provides actual cash value coverage, which covers the cost of replacing your house with less depreciation, as well as an agreed loss-settlement policy for no-hassle complete loss coverage.

Proper Insurance

Proper Insurance is another lesser-known insurance provider that specializes in short-term vacation rental insurance. It’s the industry leader in this space and can give you an online quote in five minutes. This is unique because most other vacation rental home insurance providers won’t give you a quote online. Those that do can seldom return quotes that quickly.

Proper Insurance is the right choice for investors with more than 10 short-term rentals per year. The company’s policies don’t have any vacancy restrictions and include building, contents, liability, and business income coverage. It also includes personal liability insurance when the property is also being used as your residence or vacation home.

The Basics of Vacation Rental Insurance

Vacation rental insurance protects you against losses that occur when the house is empty or in between occupancy seasons. You will require short-term rental house insurance, which is not the same as homeowners insurance. If a vacation rental house is owner-occupied for 14 days or less a year or rented 90% of the time, insurance companies consider it a business. This, however, varies by the insurance company.

If you rent a vacation home, vacation rental insurance is a good idea if you:

• You don’t reside in your vacation rental home all year, but you do rent it out sometimes.
• If you rent property, even if it’s a residence you just use on occasion, it’s considered a “commercial activity” by insurance companies.

“The property owner purchases homeowner’s insurance, which protects the residence, other buildings, personal goods, loss of use, liabilities, and other things. Other insurance implications for homeowners who rent out their property depend on how often the owner leases the property.”

—Todd Kozikowski, Clearsurance Co-Founder

Regardless of the sort of provider you pick, homeowners’ insurance plans are relatively similar. Providers, on the other hand, provide a wide range of vacation rental insurance products. Some suppliers take into account how often you rent out the property. If the provider judges your frequency to be minimal, you may be able to add a rider to your homes’ insurance. Unfortunately, this isn’t a hard and fast rule, and alternatives vary greatly amongst providers.

Vacation rental house insurance companies sometimes request a separate policy that includes business liability coverage. Whatever sort of vacation rental insurance coverage you choose, it should have a few key features.

The following items should be included in a vacation rental house insurance policy:

• Personal injury liability coverage; protects your tenants, their visitors, and anyone else who visits your home.
• Contents and structural coverage: In the case of a fire, damage, theft, or other occurrences, the building, and its contents are protected; luxuries such as a swimming pool or hot tub may also be insured.
• Rental income coverage: The coverage will pay you for missed rental revenue if your property is destroyed and you lose prospective rental income.
• Additional coverage: If you reside in an area where flood or Insurance against earthquakes is required, you may need to add it to your policy.

Because various insurance companies have varying policies, it’s important to contact an insurance agent and disclose that your vacation home is for rent and not your regular abode. If homeowners tell their insurance agent that their home is their main residence when it isn’t, they risk not being insured or having their claim refused. They must instead get short-term rental insurance.

Special Considerations for Condo Owners

A beach condo that you rent out will need the same level of protection as any other free-standing construction. Condos, on the other hand, may have a homeowners’ association or a general management organization. While the HOA usually covers items that are considered common spaces, there may be a separate deductible-like provision called loss assessment that you must pay.

If there is a claim against the whole community, the HOA assigns a loss assessment to each property owner in the association. For example, if an elderly tourist is wounded in a fall along the beach route, the claim may be filed against the whole association for failing to properly maintain the way, and the loss assessment will be paid. The amount of the loss assessment varies by association, but it may be as much as $50,000 for property owners in earthquake-prone locations.

If the HOA master policy has a claim against it, you may get vacation rental property insurance that covers this loss assessment.

Second Home vs. Vacation Rental Home

People buy vacation rental homes for two reasons: to use for their own holidays and to rent out to others, which helps to cover the costs of homeownership and vacation expenditures. A second house, on the other hand, is seldom leased out and is instead utilized as a secondary dwelling. When it comes to insurance, this makes a difference.

For example, if the owners use a vacation rental home for 14 days or fewer per year or 10% or less of the time it’s rented, Providers of Vacation Rental Insurance generally consider it a business.

This is, however, a basic rule of thumb that varies with each supplier. Insurance companies also want to know how frequently owners or property management visit the property.

A second house, on the other hand, isn’t leased, and the coverage is identical to that of a standard homeowners’ insurance. Because it does not have the responsibility associated with tenants, insurance companies consider a second home to be less dangerous than a vacation rental house. Some homeowners’ policies include coverage for a second home, while others require separate coverage.

Vacant Home Insurance vs. Vacation Home Insurance

A vacation house is a secondary residence that is used for family vacations, holiday rentals, and short-term business visits. The final two of these applications need the purchase of commercial insurance. A vacant house is an uninhabited home that is in the process of being sold, is in probate, or is otherwise unoccupied and requires some type of personal homeowners insurance.

Vacation Home Insurance Claims Examples

Consider the case of a family that acquired a mountain lake cottage as a holiday rental for summer fishing and winter skiing. The family stays at the house for a week in the summer and a week in the winter, but they rent it out the rest of the year. In the autumn, before the ski season starts and the kids return to school, they have a difficult time renting.

The insurance firm must examine the following possible risks:

• Mountain wildfire zone: Because of the possibility of wildfires and the difficulties fire workers have negotiating narrow or gravel mountain roadways, homes in the mountains sometimes have specific underwriting risks. In order to obtain and price these insurance, ingress and egress are important considerations.
• Lake flooding: Heavy rains or snowdrift melt may cause lake levels to increase, resulting in major flooding. Flood damage is not covered by homeowners or vacation rental property insurance and necessitates the purchase of a separate flood policy.
• Unoccupied vandalism and burglary: Vandalism and burglary are common targets for empty houses in distant areas. Even if there are neighbors, they may not report the crime since they are used to diverse persons staying at the property.
• Squatters: Taking over a holiday rental as their own property since it was vacant frequently necessitates lengthy eviction actions. This might have a negative impact on rental occupancy and revenue, as well as possible squatter damage.
• Abnormal wear and tear from frequent usage: Frequent use of items like plumbing or appliances combined with periods of inactivity might result in an increase in claims for pipe bursts or appliance failure.
• Theft of holiday rentals: Most vacation rentals provide everything a tenant needs, including kitchenware. It’s not unusual for valuables such as artwork, literature, or sporting equipment to vanish.
• Harmed guests: If a tenant is injured after tripping on a broken yard paver, they may claim for medical bills, missed income, and a return of vacation expenditures.

Many of these properties are located far from neighbors or in areas where other houses may be empty due to the fact that they are also holiday homes. This implies it might be weeks, if not months before someone notices a problem that requires care. Because the homeowner was unable to alleviate the situation in a timely manner, a little pipe rupture that goes unreported for a week may result in 10 times greater damage.

Costs of Vacation Rental Insurance

The average annual cost of vacation rental insurance is $2,000 to $3,000, which is about two to three times the cost of a standard homeowners’ policy. The holiday rental premium is calculated based on how the residence is utilized most often. In general, the cost is cheaper if you plan to use your home for yourself rather than for short-term tenants.

The average cost of homeowners’ insurance is $1,228 nationwide, although it varies significantly by state..

Factors Affecting the Cost of Vacation Rental Insurance

The cost of vacation rental insurance is influenced by a number of things. Vacation rental properties are more expensive to insure than permanent residences since they are empty for longer periods of time, increasing the risk of vandalism and theft. Furthermore, visitors seldom treat the house as if it were their own, which may lead to claims for things like fire or harm.

Factors Affecting the Cost of Vacation Rental Insurance include:

• Deductible: The bigger your deductible, the less expensive your coverage will be, and vice versa.
• Replacement costs: The more costly it is to rebuild a property, the more expensive it is to insure it.
• Location of the property: The cost of vacation rental insurance varies substantially depending on the location of the property.
• Rental frequency: If you plan to use the property largely as a second home or holiday house, the cost will be lower than if you plan to use it as a short-term rental.
• The average rental period is: Short-term rentals, on average, have a greater policy cost than long-term rentals.

If your vacation rental home will be empty for 30 days or longer, you may need to add a vacant property endorsement to your policy to preserve coverage.

What is the Process for Getting Vacation Rental Insurance?

Vacation rental insurance is often applied for in the same way that homeowners’ or vehicle insurance is. Choose a company that provides the coverage you want, is located in your region, and has the greatest pricing for that coverage. Allow 20 to 30 minutes for the agent to gather all of the necessary information over the phone in order to properly insure the policy.

The application includes questions on the kind of roof, any previous leaks if you have a garage or house alarm system, and other criteria. In most cases, you may apply over the phone or online, sign the documentation through email or fax, and then pay the premium so that the policy takes effect right away.

When applying for holiday rental house insurance, you’ll often require the following documents:

• Deed or settlement document as proof of ownership
• A driver’s license or passport are acceptable forms of identification.
• Insurance policies
• Contracts with property managers: Having a property manager typically means fewer empty weeks and someone legally liable for the property’s care and monitoring. This may help you save money on your insurance.
• Documentation of security systems: Property owners sometimes get a discount on vacation rental property insurance if they can provide proof of security monitoring.
• Copies of advertisements: Some insurance providers may want to examine how the property is advertised to have a better idea of the sorts of tourists who rent the whole property. A young family faces a different danger than college students on spring vacation.

Almost all insurance companies may provide a conditional receipt as soon as the application and payment are received. The application is subsequently sent to an underwriter, who verifies all of the information and determines the premium.

Other Insurance Requirements for Vacation Rental Properties

A conventional homeowner’s or vacation rental property insurance policy does not cover many natural calamities. Earthquakes, hurricanes, and Insurance Against Floods are examples of these.

Insurance against earthquakes

While most people associate California with earthquakes, any property owner up and down the West Coast and into Las Vegas and Arizona may want to consider getting Insurance against earthquakes. Standard vacation rental insurance policies do not cover “earth movement,” which is the primary cause of damage and loss in an earthquake.

In California, you can purchase an Insurance against earthquakes policy at the same time that you get the vacation rental insurance policy through the California Earthquake Authority (CEA). In other states, talk to your insurance agent about the real risk of damage and what you can do to protect your property.

Insurance against hurricanes

Most typical plans do not cover windstorm damage caused by a hurricane, in the same manner that earth movement isn’t covered. Coastal communities in Florida, Texas, Louisiana, and Hawaii will need a hurricane-specific secondary insurance coverage.

While hurricane season is just for a few months out of the year, don’t wait until one is approaching to purchase insurance. When storms are assessed to be a danger, new regulations and policy modifications are typically put on hold.

Insurance Against Floods

Oddly, the flooding that can happen during a hurricane is not covered by Insurance against hurricanes. Neither are other types of floods such as rising waters due to storm surge or lake and river overflow, or levee breaks. Double-check this. My understanding is Insurance against earthquakes covers most earth movement. These losses are covered by Insurance Against Floods. Most Insurance Against Floods in the nation is priced based on proximity to water sources and the frequency of floods.

It’s important to keep in mind that if you do need Insurance Against Floods, it usually takes 30 days from the date of application and payment until it goes into effect. The biggest issuer of Insurance Against Floods is FEMA, but there are some private Insurance Against Floods providers such as Hiscox that has excellent pricing and broader coverage than FEMAs policies.

Commonly Asked Questions (FAQs)

What exactly qualifies as a vacation rental property?

A vacation rental property is a residence that the owner uses for holidays and also leases out to help defray the expenses of vacationing and owning. A vacation rental home usually includes amenities and is near a tourist destination such as beaches, monuments, or mountains.

Why is it more costly to insure a vacation rental property than a home?

Vacation houses are considered higher-risk properties for a variety of reasons, and as a result, their premiums are higher. Vacant properties are vulnerable to vandalism and theft, renters who neglect the property, resulting in a substantial loss, and tenant claims of injury or property damage. Vacation residences that are leased out are considered commercial concerns and, as a result, have a larger risk.

Is there any holiday rental insurance offered by Airbnb?

On its website, Airbnb provides host protection insurance, which is a short-term holiday rental insurance coverage, but it’s just a backup plan. As a result, hosts must have their own homeowners’ or rental property insurance. The Airbnb coverage is in addition to the insurance that already exists. It isn’t meant to be a replacement for the policy.

Is it necessary to get insurance if you own a vacation rental property?

Property insurance is usually required to get a loan on any real estate, including holiday rental properties. That is true regardless of whether you employ a private money lender or a traditional lender. If you paid cash for the property, however, insurance is not necessary but highly suggested.

Are tenants covered by a vacation rental house insurance policy?

Vacation rental insurance prevents damage to the property and protects the property owners from responsibility. A renters’ insurance coverage should be purchased by anybody renting a home for longer than 30 days. They should purchase travelers’ insurance if their lease is just for a few days or weeks.

For vacationers, what is vacation rental house insurance?

Individuals who rent vacation homes should also think about insurance. Many people already have coverage for personal things lost or stolen while traveling via their homeowner’s or renter’s insurance plans, minus the deductible. Most credit cards include some type of travel insurance that will cover deposits and cancellation costs.

Conclusion

Because holiday rentals are considered a commercial activity, a typical homeowners insurance policy will not cover your vacation rental property. It’s essential to have a vacation rental insurance policy that covers dangers, liability, and theft. In addition to their various forms of insurance, most insurance companies provide vacation rental insurance.