Think Your Home Owners or HO6 insurance covers your vacation rental liabilities? Think again…

Insuring a vacation rental can be a challenge. Many owners and managers make the mistake of thinking that standard homeowners insurance covers their liabilities. The truth is most home owners policies have explicit exception clauses that bar coverage of any damage or liability incurred from a commercial activity.

The Different Types of Liability Insurance

Home Owners or HO6 insurance:

Homeowners (HO) or Condo (HO6) Insurance: Homeowners insurance is designed for primary, owner occupied properties. It carries building, contents, loss of use, and personal liability coverage for the insured.

Loss of use is for relocation costs the insured would incur in the event of a loss, i.e. a fire. This is a coverage you need for your primary home as you would need to rent a condo or house while your property was being rebuilt.

Personal liability covers claims or lawsuits against you arising out of bodily injury or property damage to others caused by an accident on your property, or by accidents away from your property, caused by you or family members who live with you. This something you need on your primary home.

Personal liability carries a “business activity exclusion”. If the carrier deems vacation rental activity, business activity, then any claim, both property and liability could rightfully be denied.

Most agents and carriers will not sell a homeowner’s policy to cover a vacation rental property. It’s written to be owner occupied and carries personal liability. Many carriers will drop the homeowner’s insurance in the event they find out the property is being used as a vacation rental property.

Landlord Insurance (DP):

Landlord insurance is designed for landlords, tenant occupied properties. It carries building, contents, loss of rents, and premise liability for the insured. Loss of rents pays “fair market value” for 12 months if there is a covered loss, i.e. fire and the property is un‐rentable. Fair market is the average long‐term rental value/price of surrounding properties in the area. An average, or fair market. In the event of a total loss, i.e. fire, it can 18‐24 months until the property is fully rebuilt and back up and renting. A 12‐ month loss of rents would be considered a limitation.

Premise liability applies to bodily injury and property damage only if the bodily injury or property damage occurs on your premise. There is no coverage beyond the premise line for amenities like bicycles or canoes or an assault off premise. Premise liability excludes sexual acts and sexual molestation by any tenant or resident of the dwelling.

Premise liability carries a “business activity exclusion”. If the carrier deems vacation rental activity, business activity, then any claim, both property and liability could rightfully be denied. Premise liability carries an alcoholic beverage exclusion, arising of the selling, serving, or giving.

Many agents brand a landlord policy as a “vacation rental policy” but it’s really not, it’s designed for a long‐term rental property being occupied by tenants, not guests.

Commercial Insurance (CP/CL):

Commercial insurance is designed for a business, a property that is open for business. It carries building, contents, loss of income, and commercial general liability.

Loss of income pays the “actual business loss” and has no time limit. The amount is only subject to the limit chosen on the policy. Commercial general liability is a standard insurance policy issued to business organizations to protect them against liability claims for bodily injury and property damage arising out of premises, operations, products, and completed operations; and advertising and personal injury liability.

Commercial general liability is the highest level of insurance a business can purchase and extends beyond the premise. It also covers things like assault and invasion of privacy. Commercial liability excludes alcohol and watercraft liability. Commercial property coverage is excluded when the property/building is entrusted to someone else. There would be no coverage when the property is rented/entrusted to others.

Commercial property has a vacancy clause and does not cover personal property of a residence. There would be no coverage if the property was vacant, or for the contents of the vacation rental.

Commercial insurance is not suited well for a vacation rental unless it is carefully endorsed to address the above exclusions. Many agents are starting to sell commercial insurance for vacation rentals, but the language of the policy is not correctly modified and endorsed.

As an AVROA member, you have access to insurance programs specifically designed for vacation rental owners and managers at favorable rates.

Start Your Membership…Here!