The low interest rates indicate that each day more people are diversifying their income by owning long-term rentals, short-term rentals, renting out a portion of their primary home, or occasionally renting out a second home. Insurance for home rentals would seem straightforward, but it’s not. Depending on how the property is being used can carry dramatically different risks and insurance premiums.
For each of the above rentals, there are things to look for as your clients try to properly insure them:
Long-Term Rentals: These are often the easy ones. The properties are typically covered with a Dwelling Fire Policy. This policy covers the building only, not the liability or the contents. That’s why Long-Term Rentals should be covered by the tenant with Renter’s Insurance. A good landlord requires this primarily for the liability coverage, with a minimum limit of $300,000. We see premiums around $500/year for modest homes in Central Ohio.
Short-Term Rentals (Airbnb, VRBO, etc.): These rentals are essentially high-volume businesses and from an insurance standpoint, carriers consider them a commercial risk. You only need to google “Airbnb insurance horror stories” to find something like this.
What about the Host Guarantee with Airbnb? There are a lot of restrictions, and our experience suggests it’s good for marketing, but if you read the fine print (and we do!) it is VERY limited. The proper insurance for short-term rentals can appear (on the surface) to be expensive, in some cases three-four times more than Homeowners Insurance. Many homeowners make the mistake of insuring their short-term rental as a private “owner-occupied” vacation home, hoping the insurance carriers won’t notice in the case of a claim. They will notice, however, and the homeowner will not be covered and likely get dropped.
Renting a Portion of a Primary Home: Some basic Homeowners Insurance policies will cover the occasional renting of a space in your home. Typically, this is the case if it has a separate entrance and is inaccessible from the rest of your house. However, the definition of “occasional use” varies by carrier. That’s why it’s important to be upfront with your agent. If your house burns down on the 220th night of renting in the last 12 months, it will be very difficult to claim “occasional use.” Instead, this would be considered a commercial use of that portion of your home and would make it a standard risk that requires Short-Term Rental Insurance.
Renting Out a Second Home: Imagine that one of your clients has a home on Lake Erie, primarily for family use, but occasionally they rent it out to help cover costs. Like Renting a Portion of a Primary Home, there are Homeowner policies that will allow “occasional renting.” The insurance landscape for short-term rentals is changing all the time. To ensure that your clients have this as an option, being honest about rental intentions is the best way to get properly covered.
In the end the right insurance coverage for a rental is an essential way to preserve the wealth your clients are building.