Host, Christine Karpinski: Thanks for joining, I'm your host, Christine Karpinski. Today's the first episode of the How to Rent Vacation Properties by Owner by Podcast series. You know, in these podcasts, I'll be bringing you all sorts of information about renting your second home. Things like writing the descriptions for your ads, furnishing, redecorating, handling keys, dealing with your renters, housekeepers, maintenance staff, sales tax. You know, I guess the topics are really endless. I'll also have some call-in guests who will be able to share their expertise as well. I've got a good list of people on the docket, so I'm excited to bring those to you. I'll be coming to you periodically with new episodes so be sure to visit HomeAway.com Owner Community. That's where you'll find the new episodes of the How to Rent Vacation Properties by Owner by Podcast series. You can also sign up to be automatically notified when I have a new show available. Just type your email address into the box on the top right hand side of the Owner Community portion of HomeAway. If you have questions or feedback, I'd love to hear them. Maybe you have a show idea, or even you'd like to be a guest, or maybe you have a story you would like to share with other owners. Please please please email me. This is a community, we want to bring you together, we want to share ideas and information.  

Today I'll talk to you about the most difficult question I get asked. It's also the most common question. I get this question asked I bet five times a week. Someone will email me and say, “Christine, where can I find homeowner's insurance for my vacation rental?” Or they'll say, “Oh gosh Christine, I just got dropped by my insurance company.” And guess what, this is not just Florida folks, this is everywhere in the United States. Just last week, it was a woman from New York who was not able to find insurance for her vacation home. It's a common and difficult question because vacations rentals do not fit into any cookie cutter category with regards to writing homeowner's insurance. We don't exactly fit into primary residence, we don't fit into second homes, and we also don't fit into you traditional residential real estate investment category. We don't have year-long leases, we have weekly renters, or maybe even just nightly renters.

My guest today is Danielle and she'll be bringing us information about insurance – what types of insurance agents we should be looking for. She'll be talking to us about liability insurance: How much liability insurance the average policy has written into it and how much liability do you think you need for your vacation rental home. The other things that she's going to do is get us to change our vocabulary when we're speaking to our agents about our vacation rental homes. Now, we're not lying. This is not talking about telling them something that is wrong. This is just in certain industries, things are defined differently.

So without further ado let's get onto our guest. Today's guest is Danielle Workman, she's an insurance professional with over 19 years experience with Affluent Insurance. She's also a patent holder for insurance packages for condo hotels. You can reach Danielle through her website Vacation-Finance.com. Danielle, are you there?

Guest, Danielle Workman: Yes, nice to talk to you Christine, and thanks for having me on your show.

Christine: And thanks for being here. You know Danielle, can you tell me a little bit about how you got into condo hotels and insurance for Affluent?

Danielle: Well I was working with a brokerage firm in Chicago, and one of my clients had bought a one twelfth fraction in a ski resort in Aspen, Colorado and it was my first real challenge with vacation properties that didn't follow the traditional owner-occupied, just for our family paradigm. So I rolled up my sleeves and got involved in some alternative insurance programs that lead me down the path over the years to work with other types of vacation properties including what led to a condo hotel program.

Christine: And just for the listeners I want to bring this together because a lot of people are probably listening and going well I don't own a condo hotel, I own a condo or I own a vacation home. In trying to find somebody that was a real experienced person in vacation rentals, I stumbled upon Danielle Workman, and she was the person that really knew the most about vacation rental insurance, because they seem to mimic each other even though fractional ownership and condo hotels are a little bit different [than vacation rentals], in a lot of the insurance respects they are similar.

Danielle: That's very true Christine. Pretty much the only difference between those three types of vacation properties is the management aspect. In the condo hotel environment, you're going to find the management company for the resort that's going to handle reservations, and housekeeping and those types of administrative duties.

Christine: And we do it ourselves. Yeah, and let's get on and get more into this. We want to know a lot about insurance and we only have a few minutes. Why is insurance so difficult to obtain for vacation rental property owners?

Danielle: Well the problem, Christine, is [that] the traditional homeowners and dwelling insurance polices are intended for owner occupied properties or second residences that are gonna be used by the owner. Or in the case when the home is rented on an annual lease. It's really the short-term rental aspect that eliminates 95 percent of the traditional insurance companies.

Christine: Ahh, so it's that short-term that really gets to us. So, why can't I just call my current insurance agent and say, “Hey, I'm renting my property on a short-term basis. Can you just insure me?”

Danielle: The problem is that your current agent likely does not have the types of policies at their disposal that will fit. So what they're trying to do in most cases is pound the square peg into the round hole. Most insurance applications are going to ask about the occupancy and use of the property. Then when you sign that contract, you're also verifying that the information that you're providing them is true.

Christine: Well can't I just tell them that I'm not renting my property?

Danielle: The challenge with that is if you misrepresent something that is material in obtaining insurance, you can actually void your insurance contract. It actually could void your coverage should you have a claim. The application requires that the client and the agent verify that the facts in obtaining the insurance have been provided correctly. It's gonna ask: "Is the property owner or tenant occupied? Is it used for primary use or seasonal/secondary use?" So those are going to be asked real blatantly on the application and you have to present that information correctly.

Christine: So just as with anything, it's never good to lie

Danielle: No, you may get away with it for a while. The other half of the lie may go uncovered for a while. But the problem is [that] should you have a claim and you have a guest either injured on your property or perhaps something goes damaged or missing from your property and all of a sudden it comes to light that your property was rented for a vacation rental, you're going to run into a problem with that claim. In fact, actually it could very likely void the coverage you had obtained in the first place

Christine: Ah, we definitely don't want that to happen. Now are there other problems with insuring your home? What are some of the other issues be that we need to consider in getting insurance for our vacation rental homes?

Danielle: Well, the next one that I would say is commonly a problem all across the United States is the location where most vacation properties are. They are in the most beautiful places in the world, which is not down the street from a fire department, lets say, or they're located in coastal areas or very rural areas.

Christine: And we know the coast. I own in Florida and boy, oh boy, every time I see a hurricane stirring in the gulf, it makes my heart thump.

Danielle: Well, I can honestly tell you over the years I immediately start thinking about all my clients, current and past, that have properties down there and I'm like, "Oh Lord, please have that storm go back out to sea."

Christine: So with those properties in the high hazard areas, that's one of the issues that makes them even more difficult to insure?

Danielle: That's true. See, each state has its own insurance issues because insurance is regulated at a state level. And then obviously you have the hazards themselves. Coastal properties could be subject to hurricanes, floods, tsunamis, landslides, and other parts of the country, earthquakes, sinkholes and brush fires could be high problematic insurance issues. Or if you're sitting and you've got a property in Minnesota, and its on a beautiful lake, your problem is probably none of those, but it could just simply be the distance from fire protection, or a water source like a fire hydrant or a pumpable lake and how far the nearest responding fire department is, and whether they're a volunteer or paid fire department, and have the equipment to bring to the site to fight a fire.

Christine: So this is much more of a complex issue than I guess I even thought of on the surface. Now what about if I owned my property in a L.L.C., does that come into play at all?

Danielle: Well it is again, in the traditional sense of insurance, it's not going to fit with what most insurance companies are going to be able to handle for you. I think personally, obviously I'm not a CPA or a lawyer, but I think it can provide a lot of advantages from a tax and estate planning basis, and then also to limit your liability for that property to simply your operation of that rental property. So there are obviously some pros.

On the con side, you can run into some insurable challenges. The reason being that most insurance companies are just not flexible enough to take a residential property that they are generally insuring as a personal home and add a business entity which is an LLC and give it liability coverage. It's just something that is just a mix that doesn't fit. There are some insurance companies that are becoming a little bit more tolerant and flexible and those type of insurance companies specialize in providing insurance coverage for affluent families and individuals, and they understand that the more sophisticated the individual, the more sophisticated they are going to set up their property ownership, either using a trust or an LLC. There also can be some alternative insurance programs that fall outside traditional insurance companies, maybe I should just take a second and say , when I say traditional insurance company, I mean calling your local agent, whether its a captive agent like State Farm or All State or an independent agent that may write for a multitude of insurance companies. There also a third type of insurance company, they're called surplus lien insurance company or in excess in surplus lines companies. And I'm going to throw out a name because some of your listeners will go, "oh that's what she's talking about," Lloyd's of London

Christine: Oh yes, we all know Lloyd's of London. If we own in Florida, I think Lloyd's is about the only company that will write there any more

Danielle: That's true, that and Lexington which is owned by AIG, are two of the major surplus liens companies writing property insurance in Florida. There are a couple of things you need to understand when you go to a surplus line company. For one, they are not backed by the state. What that means is that should there be a disaster that makes them go bankrupt, in insurance we call that insolvent, and they're unable to make their claim obligations, they're not backed by the state, they have no bail out program. So it's very important to check the financial status of any insurance company you're going to work with, especially in states where insurance is hard to come by like Florida.

Christine: And how do you check the financial status of an insurance company?

Danielle: Anyone can go to a website and its www.ambest.com. That's one of the financial ratings companies and what you do is go to company ratings, type in the name of the insurance company and you'll be able to pull up a little history of that insurance company, how long they've been in business, what their financial status is, and what you're really looking for is an A rated company. Don't go back to grade school and think that B and C are any good. You really want an A rated insurance company.

Christine: Great advice, excellent.

Danielle: The other two things you should know, too, and I don't know how many of your listeners are going to end up with a surplus liens company, but two things to realize is [that] the premiums are generally due up-front, and if you do sell your property or want to cancel your insurance before the policy renews, they're going to withhold a good portion of the premium, and there are severe penalties for canceling the policy.

Christine: By penalties, do you mean at the end of the policy if I sold my property that I would have to pay extra money?

Daniell: No, simply that you're not going to see as much of a refund as you think. They can withhold up to 50 percent of the premium when they return it to you.

Christine: Ok, so that just means that I might not get the money refunded from the unused insurance. Is that right?

Danielle: That is correct

Christine: Danielle, you had mentioned liability insurance. That's another question I get asked very often and I always tell people to turn to their insurance professional and their attorneys and other professionals to answer the question of how much liability do you need. How much would a common policy have?

Danielle:  Well, those are two different questions. The first one you said is how much liability do you need? And of course the only answer is: more than you get sued for! The challenge is projecting what is the actually need. This is where your local agent or professional. risk manager who knows the whole scope of your assets and exposure is going to have to work with you. The reason being is that it's not going to be the exact same answer for everyone. At a minimum, as a rental property owner , I would recommend at least a million dollars of liability coverage.

Christine:  You know a million doesn't go very far these days

Danielle: I agree with you there. A million is the most you're likely to be able to buy with an individual insurance policy. From there an umbrella policy, which may only cost you a couple of hundred dollars more can add the additional layers of protections

Christine: Now can I get an umbrella policy from my current policy, if I own a home? Can I just add the extra liability on my primary residence as an umbrella policy to my whole estate of vacation homes?

Danielle: That would be the very first place I would check. Because your current agent who can offer you an umbrella that would go above and beyond your home, your vehicle, your boat, and other type of properties and toys that you own is going to be your first and best option. The only thing you need to double check is will it cover over short term vacation rental property? And the reason I'm asking you to be specific about that is a lot of companies view that as a business and not a personal exposure and perhaps your umbrella policy would not follow in that case. Now there are some specialty companies out there that will offer an umbrella even over properties that are held in a trust or an LLC. Again its going to be a surplus lien company. One that I know of right off the bat that will do this is US Liability Insurance Company. It's a company you're going to obtain by calling your agent and having them check for a rep that can access that type of program.

Christine: And are those pretty much available in every state?

Danielle:  Most every state. I've not run into a state where you can not access that program

Christine: We recently switched insurance and that's actually how I found Danielle. When we were researching insurance for ourselves, I found her and found her to be extremely knowledgeable. I know when we were going through the insurance process one of the questions that they asked me is they said, "Ok we do insure short-term vacation rental property. That's not a problem, but one of the questions they asked me was who manages your property? We need the name of your property manager. Of course I panicked. I'm like… property manager? I don't have a property manager. I wrote the book on managing vacation rental property by owner. How do we get by that?

Danielle: Well, your insurance company is looking for something a little different when you hear the words property manager. You're likely thinking about the persons or organization that handles everything from housekeeping to reservations like in a resort community when they have a rent management company. But from an insurance company's perspective they're more concerned about weekly property maintenance. You probably already have a rental manager, but you're calling them something else. It could be your housekeeper who's coming in and doing your housekeeping at the end of a weeks stay. It could be your handy man who comes and mows the lawns and makes sure the windows are secure and the furnace is working and that type of person.

Christine: So they're really just looking for someone who is going to be on the premises-- your eyes and ears. They're trying to make sure the property isn't going to be left vacant or left to the vacation renter, our vacationers, to check in and checkout without any checking up on the property.

Danielle: I'm so glad you used the word vacant, Christine, because I can help your listeners all across the country here understand. First and foremost, that is probably the one word you never want to use with insurance agent. Vacant means the property has no furnishings in it, no one is using the property for what it was intended. What you really have in a vacation rental situation is probably off-peak seasons of unoccupancy.

Christine: So we have to change our whole vocabulary. We have to say yeah, I have a property manager. And that I don't have vacancies, it's just unoccupied.

Danielle:  Right, so as long as you don't hang a sign in front your property like hotels do that says, "Vacancy," we're probably ok.

Christine: I think were pretty safe. Danielle, can you please tell us how we can reach you?

Danielle:  Yes, the best way is to go to our website. Its www.vacation-finance.com. And on that website you'll see in the left hand column a place to click on unique insurance. And it will pull up actually a little background information about our insurance program which is a little bit vague, but through that website you can email me at info @ vacation-finance.com. The only other thing I would like to recommend, too, is your personal agent who handles all of the rest of your insurance is a very good place to start, and if you find that agent does not have the resources to help you, there's a couple of key insurance company websites that I would recommend that you use to search for another agent

Christine:  Ok, so everyone get your pen and get ready to write theses websites down, I'll also have them listed on our website.

Danielle:  Very good. Its www.firemansfund.com, www.Chubb.com , and www.aigpcg.com. Now, what these three companies are is they all cater insurance products to the affluent. Now don't get all excited if you feel like you're not high roller and qualified for their insurance program. What I'm doing is using these types of insurance to qualify your insurance agent. So, you many not end up in their insurance program, but it gives you the opportunity to maybe find the independent agent that has more resources than your current agent.

Christine:  Well thank you so much for being on the show again. We really appreciate it and we might be calling you back some day.

Danielle: That would be great. Good to talk to you Christine

Christine:  Have a great day

Danielle:  You too

Christine: Well that wraps up our first edition of how to rent vacation rental properties by owner podcast. There's a couple of people I would like to thank for helping bring this together before I close of course: HomeAway.com, our announcer Alan Cameron, our sound engineer Tom Karpinski. And I'd like to thank you for tuning in and please come back often, I would love to hear your feed back.

Don't forget to take time to enjoy your vacation home yourself and happy renting by owner!

© Copyright 2006 HomeAway, Inc. 

What to Do if a Hurricane Is Heading Right for Your Vacation Home    How to deal with hurricanes headed straight for your vacation rental home when you live faraway.

Homeowner's Insurance For Vacation Rental Homes    Accidents happen. Shield yourself from the unforseen with Homeowner's Insurance.

Liability Insurance and Vacation Rental Homes    Don't underestimate the importance of liability insurance on your vacation rental property.