Owning rental property is a great way to get some supplemental income, especially for retirees or people working toward retirement. Some people even manage to own enough rental properties to live entirely off the revenue they receive from rent checks. But there are certainly expenses and issues that can make rental property ownership complicated.
Insurance is one of those complications. What type of coverage should you have? Will a regular homeowners insurance policy suffice? The answer is likely no, a standard homeowners policy will not be good enough for your rental property.
Depending on the terms of the homeowners policy, it may only be enforceable for owner-occupied homes, which could be a serious problem if one of your tenants gets injured on the property and decides to sue you.
Instead, you should look into a rental property insurance policy.
A rental property policy is similar in many respects to a homeowners insurance policy except for a few key, and beneficial, differences.
Like a homeowners policy, a rental property policy will insure the property itself and any attached structures, including decks, sheds, outbuildings and garages.
Unlike a homeowner’s policy, which covers your belongings in your home, none of the tenant’s belongings within your rental property will be covered by your rental property insurance. Your tenants, if they’re smart, will get their own renters insurance policy, but that’s not on you.
You enjoy similar liability coverage with a rental property policy. If a tenant injures themselves on your rental property and holds your property responsible, for whatever reason, the rental property policy will protect you. A standard homeowners insurance policy will not.
Lastly, and this is one of the things that makes a rental property policy really valuable, is compensation for loss of income should disaster befall your rental property and it becomes uninhabitable. The definition of “uninhabitable” is laid out by the policy itself, so make sure you talk to your insurance company to know for sure what types of situations meet the threshold to deem a property uninhabitable.
Not all rental property policies are the same. For example, some will cover burglary or vandalism and some won’t.
What About Short-Term Vacation Rentals Like Airbnb?
More and more people are renting out their second homes or vacation properties on platforms like Airbnb. If you’re only using that property for part of the year, why not make some extra money on it by renting it out on a short-term basis while you’re not using it?
The question then becomes, are you required to get the same type of rental property insurance for a short-term vacation rental as you would for long-term tenant rentals? The answer is no. Insurance carriers view owners of rental properties with long-term tenants as landlords, but they view short-term rental properties as a business, like a hotel.
Hotels don’t get homeowners insurance policies. They are required to carry commercial liability coverage. The majority of commercial insurers will not write a commercial policy for a homeowner renting out rooms on Airbnb for a variety of reasons. So where does that leave you?
It’s a complex situation, because many insurance carriers are shying away from writing short-term rental insurance policies because they are viewed as extremely high risk.
Make sure you’re familiar with your current homeowners or rental property insurance coverage, as it likely has a business activity exclusion.
Working with an independent insurance agent with access to many carriers is often the best way to find coverage in a situation like this, especially when most carriers are shying away from writing this unique type of business insurance.
Talk with the Local Coachella Valley Area Insurance Experts
Knowing which policy is right for you is dependent entirely on your situation. Working with an independent insurance agency, such as Palm Desert Insurance, is one of the best options when it comes to shopping for rental property insurance. We can analyze policies offered by multiple carriers to help you find the one with the right features and price point to meet your needs.
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