Whether you’re offering short-term lodging or renting to long-term tenants, a home rental business can be lucrative. But it also carries the risk of significant losses if you don’t factor occasional damage into your planning. The right kind of insurance to choose depends on the type rental arrangements you’re making.
What are My Insurance Options?
The best kind of coverage for your rental situation often depends on the length of tenancy. Talking to your insurance company about your specific rental plans is crucial. If a property manager helps you book and supervise your rental home, that professional should also be consulted for their expertise in the region, and with various forms of real estate.
If you own a second home that isn’t your primary residence — either as property that is purely an investment or as your vacation home that you also offer for rent — then you’ll need a landlord policy, also known as a rental dwelling policy. These cost up to 25 percent more than a standard homeowner’s policy but will be worth it in the event of damage or even loss of rental income.
Additionally, a landlord policy is often required if you are renting out your primary home for six months or longer. This situation often occurs when homeowners will be traveling, and seek tenants, both for income and for someone to occupy the home while they are away.
You may find that a “D3,” or “open peril” is the best landlord policy to choose. D3 excludes fewer disasters, which can be helpful given the variety of renters you may have.
Homeowners seeking insurance for short-term rentals are usually renting their homes for just a few days at a time. While regulations may vary in your area about what you’re legally required to do regarding insurance, it’s essential to have the appropriate insurance.
If your home suffers damage while a renter is occupying it, that damage is considered to have occurred to your rental business, not your home. Because of this distinction, you’ll need to check with your insurance company about the appropriate coverage. If your short-term rental is one-time, a business rider to your current homeowner’s policy may be all you need. But if short-term rentals will be a regular occurrence, a separate, hospitality business policy is likely to give you the most protection.
It’s a good idea to stipulate to long-term tenants that they carry renter’s insurance. This will cover their possessions, and you’ll have an understanding going into the rental period that your insurance can’t protect these items.
Have additional questions? We’re always happy to guide you on questions about property management, insurance, and rental procedures. Contact us today at Aria Properties for additional information.