That Dirty Word …. Insurance

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Be sure to read the fine print!

Liability Insurance … I can actually hear the brakes squeal when I approach this subject with a new clients. It’s that dirty “I” word. We pay and pay and pay, and hope we never have to use it. Good liability insurance is essential to all vacation rental properties. Maybe you’ll never need it, but if you do …. thank goodness it’s there. I recently had a colleague email me the way she explains liability insurance to her new clients. It is so important for owners to get the correct insurance. Let’s compare it to buying motorcycle insurance. Say your agent typically sells auto insurance and has no experience with motorcycle. You purchase an auto policy and pay on it month after month. But when you have a motorcycle accident, that auto insurance policy is not going to do you any good and you have no coverage on your motorcycle accident. Same with property insurance … on landlord, homeowner and umbrella policies, look at the fine print … you may find that there is an exclusion of coverage for homes rented for less than 30 days. Paying for insurance without adequate coverage will cost a whole lot more than $300-$400 in the long run … or a lawsuit.

Many vacation home owners who think they have adequate liability coverage do not. I know this because almost 100% of the owners that come to me from other vacation rental companies do not even have basic coverage. They may say they have an umbrella policy from AAA! Nope … the last time I checked, AAA does not sell vacation rental insurance … which was last week. The same goes for many of the major insurance companies. In fact I had an owner/client tell me recently that another local vacation rental company told her she did not need any liability insurance, they would cover it! I’m not sure how that works since the company clearly has no “insurable interest” in her property. Some folks in this industry are uninformed and some fly on “a wing and a prayer.” They want your business. But the old rule applies … if it’s too good to be true it probably isn’t true. Unfortunately you will suffer the consequences if there is an accident in your property and it probably won’t matter what your management company told you.

For those of you that have a vacation rental property, here’s a few questions …

  • If you enlist the assistance of a real estate agent in renting your property …. has your real estate agent discussed liability insurance with you or explained your possible exposure if an accident occurs during a tenant’s stay at your property?
  • If you manage your own vacation rental, did the listing site require you to show proof of liability insurance or advise you on the coverage you should have on your property?
  • If your property is listed with a vacation rental company, have you thoroughly read through your management contract regarding liability insurance requirements? Have you received information and guidance from your vacation rental manager?
  • If you already have liability insurance in place … have you read the fine print? Is there anywhere in the policy that states that this is a home owner’s insurance and not a business insurance? (and remember, once you take money from a vacation rental tenant … your home is considered a business)

I have been in the vacation rental industry for over eighteen years and I have noticed that in the past even some of the major insurers sold coverage pretty much like the motorcycle example above. It has been increasingly difficult to find the proper vacation rental coverage and costs have increased significantly over the years. I shudder to think of the number of properties that I have management in the past with only umbrella policies … they were standard back in the day. Thankfully, in all those years we never had to test those policies. Not one of the multiple-thousands of guests I worked with, have brought suit against an owner. So … you may be asking why not play the odds? What are the chances of being sued? Well, Murphy’s Law would say something to the effect of; as soon as you decide not to purchase liability insurance … you will be sued. Picture this: your tenant slips on a loose tile in the bathroom and breaks a hip. Can you afford to pay for their hip replacement? What if they end up in a wheelchair for the rest of their life? Can you afford $1M plus in medical and lifelong care? It probably won’t happen … but if it does? If I owned a vacation rental home I know it would definitely take me down. I’m not a lucky gambler.

Facts you should know:

  • Short-term vacation rentals are considered businesses in the eyes of the insurance world. When you collect money to allow someone to stay at your home for a short period of time it is a business transaction. Your rental is no different than a coffee shop or grocery store, it’s a business.
  • A homeowner’s policy does not cover business activities. It specifically excludes business activities. In other words, it will not respond to any claim involving running a business from your home. A recent real life example occurred when a renter backed up a truck and stole everything from the vacation rental and a very reputable homeowner’s insurance company denied the claim since it involved a renter. (this occurred on the East Coast, not locally)
  • A homeowner’s policy and most dwelling/landlord policies carry personal liability coverage. Personal liability coverage will not respond to business activities. For example, a paying guest slips in the shower and elects to sue you for their hospital bills. For this event, you need a commercial liability policy (business liability).
  • A personal umbrella policy does not cover/protect a business. A personal umbrella will not follow business activities. A personal umbrella is only for personal negligence such as running a stop sign and hitting another car.

So what liability coverage is recommended on a vacation rental property? The standard is $1M/$2M (per-occurrence/aggregate) commercial liability coverage in the event of a guest’s injury or death and $1M/$2M (per-occurrence/aggregate) commercial liability coverage extended to your amenities.

Where do you get the insurance? You can try your insurance company or call an insurance broker for quotes. But again … make sure you explain that you will be doing “vacation rentals” … and remember to check the fine print. If you decide to do monthly rentals only and the policy states that they will cover tenants renting for over 30 days … make sure your rental agreement is for over 30 days. February is tricky; 28 nights … 29 in a leap-year. There are also recommended liability policies specific to vacation rentals over 30 days.

Vacation Rentals of the Desert is a member of the Vacation Rental Manager’s Association (VRMA). Recently an insurance company, CBIZ, joined as a vendor associate. CBIZ offers insurance coverage specifically for vacation rental properties and they know the industry well. After many high recommendations from colleagues and reviewing their materials, we have started referring CBIZ to our homeowners who are struggling to find coverage and I am now sharing it with you.

Believe it or not … this post is not an advertisement for CBIZ. I am just so pleased to find an insurance company that knows the industry, has agents that know the correct questions to ask owners and offers a policy that gives the unique coverage needed for a vacation rental property. I understand the struggle to find good, affordable coverage and I’m hopeful that CBIZ will make my “insurance conversations” a bit easier. I have already heard back from one of my owners who not only contacted, but fully insured her vacation home through CBIZ. She was delighted with the coverage and said that after speaking to several insurers, felt she had saved hundreds of dollars with CBIZ.

The CBIZ program is a first-of-its-kind insurance coverage, tailor-made to short-term Vacation Rentals like yours:

 Replacement cost coverage for your building(s) and your contents including theft
 Coverage for damage to your building and contents caused by a guest
 Actual loss of income coverage with no time limit
 $1M/$2M commercial liability coverage in the event of a guest’s injury or death
 $1M/$2M commercial liability coverage extended to your amenities
 Underwritten by Tudor Insurance, AM Best rated A+

Get a quote at http://cbizspecialtyinsurance.com/vacation-rental/

Or you can call (888) 883-5696 to speak with an agent.

 

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