 |
Homeowner's Insurance For Vacation Rental Homes
Accidents happen. Shield yourself from the unforseen with Homeowner's Insurance.
The following is an excerpt from Profit from Your Vacation Home Dream, by Christine Karpinski (Dearborn Trade Publishing, July, 2005, ISBN: 1-4195069-1-9, $19.95)
Don't overlook the importance of insurance.
Don't overlook the importance of insurance and understanding why homeowners need to have it. If your vacation home or condo is part of an association, investigate to see if the association has a master insurance policy or a blanket policy that covers the common grounds and insures the exterior walls of the building (generally up to the sheet rock). If the building that houses your condo is covered by such a policy, you likely won't be required by your mortgage company to purchase separate insurance. Still, in my opinion, I think it's wise to consider buying some. Without it, any coverage for everything inside your property (such as the cabinets, fixtures, and so on) is all for not.
| Also consider purchasing extra insurance if your property is located in an area that is at high risk for natural disasters such as hurricanes or floods. Proximity to the ocean or lakes can affect your risk. Yes, flood and hurricane insurance can get expensive, so research your options carefully.
When shopping for a new property, I considered buying a place that was right on the beach—until I found out that hurricane insurance for that home cost $3,600 a year. By contrast, insurance for a property right across the street from it cost only $600 a year. This proved to be a huge consideration when deciding to purchase this vacation home.
|
 |
Personal Liability and Rental Insurance
In addition to homeowner's or property insurance, consider purchasing personal liability insurance. Often, you can select this option as a rider policy on your current homeowner's insurance as an extension of liability on your second home. This is important because, in today's overly litigious society, what happens if your renters slip and hurt themselves in the shower and declare that their injuries were caused by some problem in the home? Then it becomes your fault and the issue could turn into an expensive legal battle. Insurance protects you from that. Also look into a specialized kind of policy known as rental insurance that covers your property in case you have a loss of rental income revenue due to events such as floods, fires, and so on. The cost for this kind of insurance is, in my opinion, too high to justify and I don't carry it on my properties. However, you might feel more secure purchasing insurance to cover a wide range of possibilities. Get educated right. from the beginning and make good decisions for your circumstances.
Determining the Right Insurance for Your Vacation Home
Your primary residence is located in one area of the country and you're buying a second home in another area. What do you need to know about different insurance needs in different areas? What types of insurance are available?
Depending on where your vacation home is located, you'd consider buying policies covering the following:
- Wind damage
- Flood damage
- Owner-occupied vs. non-owner-occupied
It's difficult to find insurance specifically for vacation rental usage, though a few companies are now coming out with policies for this niche. Remember, offering a home for short-term rental means you are in business—the business of providing an expensive asset to your customers. While your rentals may be booming, your rental income may be disproportionately low compared to the value of the real estate you allow guests to use. When you do your homework, you may be surprised to learn that everyday property and casualty insurance on your primary policy is not designed for rentals, therefore it can be inadequate to protect your property. That means your current insurance carrier may disallow claims relating to incidents with renters. Indeed, the carrier may cancel your coverage with little warning if there is ever a claim, or simply won't allow coverage of guests. This could leave you holding the bag for thousands of dollars. Even if you think you're properly covered, you'd be wise to take a second look. Here's a general rule of thumb: Avoid taking risks that could cause you to lose your home or dramatically affect your finances.
Listen to the podcast on Insurance.
© Christine Karpinski 2006
Related Tips
|
|