Vacation rental properties are investments. They, like any sold product or service, should increase your income, not your anxiety. They should also be protected against disasters to ensure they deliver a solid return on investment (ROI).
To help you accomplish these aims, this post has been divided into three sections. The first addresses common and costly homeowner insurance claims. The second examines some of the differences between homeowners and landlord insurance. Finally, the third section offers general tips designed to increase the safety, security, and longevity of your rental property, belongings, and tenants.
Common Insurance Claims
A report from Travelers Companies Inc., Top Ways Things Can Go Wrong at Home, shows the most common homeowners insurance claims related to weather. The company bases its findings on customer claims made between 2009 and 2015; however, an overview from the Insurance Information Institute (III) depicts a similar trend for the years 2010 to 2014. Weather leads the pack when it comes to claim frequency.
Travelers Companies Inc. lists the five most common house claims:
- Exterior wind damage causes 25% of all home claims.
- Not all water damage occurs because of weather—19% of home claims are due to nonweather events like plumbing and appliance issues.
- Hail accounts for 15% of home claims.
- Weather-related damage—rain, melting ice, and snow, not catastrophic events—rests at 11%.
- Theft claims the smallest slice at 6%.
However, the claims story shifts slightly when it turns to cost. Fire, not weather or theft, results in the costliest claims. And an untended flame doesn’t always cause those fires; rather, Travelers says overloaded circuits often produce the initial spark.
Travelers’ data also demonstrates regional differences. Wind appears as the most common cause for home claims in the Northeast and South. The Midwest, by contrast, evidences more hail claims. The cost also differs by regions. In the Northeast, fire is the costliest, while hail is the most expensive in the South.
Pat Gee, senior vice president of Personal Insurance Claim at Travelers, sums up the importance of such findings in his statement to the press. He remarks, “Any number of things can go wrong with a home, and it’s impossible to predict them all. But if consumers focus on these particularly common risks and take preventive steps and perform routine maintenance, it may help lessen the likelihood of damage.”
Differences between Homeowners and Landlord Insurance
If you’re deciding which insurance policies to purchase for your home and rental properties, you should know straight off that one policy rarely delivers all-encompassing security and peace of mind. While homeowners and landlord insurance both endeavor to protect your property against theft, accidents, and disasters, they go about it in different ways.
Homeowners insurance, for example, typically covers your home’s structure, personal belongings, living expenses, and liability risks. But beware, homeowners insurance comes in three different options: HO-1, HO-2, and HO-3. Depending on which one you purchase, it may or may not cover all the perils that could endanger your home.
Landlord insurance covers those same things—sort of. Its level of coverage usually varies from that of homeowners insurance. For instance, landlord insurance covers personal property but means any items simultaneously owned by you and used in service of your tenants and the property. Such belongings include furniture, appliances, and equipment like a lawnmower or snow blower.
The liability protection also changes. A traditional homeowners policy covers only damages caused by you. Landlord insurance, though, covers any accidents that occur on your rental property, regardless of who is at fault. In addition, the coverage typically covers associated legal fees and medical expenses.
Simply put, if you own vacation rental property, a homeowners insurance policy won’t cover all the risks that arise from the environment and your tenants. Some insurance companies may decline your claims too. John W. Saunders, president of Slemp Brant Saunders, says in an interview with HouseLogic, “Homeowners insurance typically covers owner-occupied, single-family residences.”
Because of that, you should get landlord insurance, possibly a business policy. It’s your best defense against all sorts of hazards—natural, human, or act of God.
9 Steps to Protect Your Rental Property against Disaster
Besides understanding common insurance claims and purchasing adequate insurance coverage, you will want to take a few other steps. These actions will help protect and secure your vacation rental property.
- Check local ordinances. The zoning laws where you live may differ from ones found at your rental property. Research the local laws and ordinances to avoid trouble with the authorities. In some places, renting out a home, even short-term, can turn the place into an illegal hotel. You likely won’t face jail time, but the IRS could wallop you with a hefty fine.
- Build a rental property inventory. Some homeowners keep a home inventory so that they can easily and accurately file claims. Follow their examples by itemizing everything on the property so that you choose the right kind of insurance and recoup a fair value on any loss.
- Review your insurance policy. If you possess only homeowners insurance, your first step is to learn about landlord insurance. If you already have landlord insurance, review the policy. Make sure it covers all your needs so that you’re prepared for any disaster. As an example, if you live in a floodplain, you need flood insurance—your basic homeowners or landlord insurance won’t cover the risk.
- Check tenants’ backgrounds. Landlord insurance sometimes includes coverage for lost rent, but you should take preventive measures. Conduct background checks and look at credit histories. Make sure tenants are who they say they are to prevent identity theft, fraud, and lost income.
- Set tenant guidelines. To protect your property, set guidelines for its use. Consider things like pets, smoking, and use of equipment, such as a lawnmower. Also, think through behavior. You want tenants who respect their neighbors, not ones who disturb the peace.
- Perform routine cleaning and maintenance. Secure homes are well-maintained homes, so make arrangements for regular cleaning and maintenance. Depending on where your rental property is in relation to you, you may hire professional services. Consider augmenting them with a smart vacuum. It’ll reduce the number of times you need a monthly cleaning or maintenance service.
- Invest in a security system. Sage Singleton, home safety expert at Safewise, recommends rental property owners invest in monitored security systems. She says, “The systems alert and dispatch emergency personnel much more quickly, which is a huge bonus if you aren’t present to manage and respond to issues.” Plus, security systems help with all-around safety and security, preventing vandalism, theft, and attacks.
- Install smart sensors. Smart sensors protect your home by keeping small issues from turning into monumental problems. Devices like smart smoke detectors and smart water leak detectors ward off non-weather-related threats. You might also consider buying smart plugs and modern power strips to prevent overloaded circuits and expensive energy bills.
- Employ smart locks. Smart locks not only protect your rental property but also ensure easy access for tenants. Instead of managing keys or codes, you simply grant access to new tenants for a certain length of time, whether it’s three days or three months. Once your guests leave—or if they prove to be unruly and need to be evicted—you can remove their access privileges.
If you want to protect your vacation rental property from disasters, focus on the three sections above. First, learn about common claims and their costs. The information helps guide your decisions about insurance policies and protective measures.
Second, examine the differences between homeowners and landlord insurance. The first often works great if renting out your personal home for a short duration of time. You need the second type of insurance, though, if renting out a secondary property.
Third, use the nine tips outlined above. They will protect your rental property, personal belongings, and tenants. By employing them, you can receive a positive return on investment and, most likely, receive happy renters who return year after year to vacation at your property.