Rental Insurance Uncovered – Are you Protected?

Protecting your property against major perils such as fire, flood, storms etc., is something we all do to ensure that our property is covered for the risk of a disaster happening.  However, once you start offering your property for rent to the traveling public you open yourself and the property to the risk of many other issues and potential claims.  Do you know what would happen if a guest fell down your stairs and then claimed they were unsafe, or if a theft occurred because your property was left unsecured during a guest visit?  These are just a few things you need to consider before you start to rent….or check over if the place is already open for bookings.

Liability insurance
We live in a litigious society meaning that the phrase ‘where there is blame there is a claim’ rings very true.  We’ve all heard of the infamous Stella Awards inspired by Stella Liebeck. In 1992, Stella, then 79, spilled a cup of McDonald's coffee onto her own lap, burning herself. A New Mexico jury awarded her $2.9 million in damages.  Since then, many claims have been made – and a lot of urban legends have grown out of the story – but the bottom line is, if someone injures themselves on your property, there is a good chance they will consider holding you liable.  Even if you are insured to the hilt, the stress that arises from this type of claim can take its toll and there is probably not a lot you can do about it as the legal stuff takes its course.
 
What you can do is to make sure you provide a safe and secure location where it would be challenging for anyone to prove you have been negligent.  This means ensuring stairs and decks have appropriate railings; swimming pools and hot tubs meet local safety codes and there are disclaimers and waivers included within any printed information you provide, for example, a reminder to always close a gate leading to a swimming pool, or not to jump or dive off a dock.
 
A solid insurance policy will cover you for damages and legal fees in defending legal claims and you should check that policy carefully to make sure your exposure to personal injury claims is limited.  If you offer amenities such as watercraft, bicycles, swimming pool, hot tub or trampoline check your liability insurance to ensure it extends to cover these.
 
Talk to your insurance broker about the amount of liability cover you should have – they should advise you on your risks as well.
 
Protecting against damage
 It is inevitable that with the constant influx of guests at your property, damage will happen.  Generally, it will be small items that can be considered the cost of doing business, but occasionally more major damage will occur such as a burn to a custom counter top or a broken picture window.

Taking and deducting from a security deposit is one way to compensate for incidents when damage by guests can be considered negligent, but for significant damage your insurance should protect you.
 
Very rarely malicious damage and vandalism can occur; parties and domestic incidents fueled by alcohol do happen and the resulting damage can be expensive to repair. Having a pet-friendly rental can attract niche travelers who like to travel with their pets. However, pets left in unfamiliar surroundings can soil and chew furniture and carpets.  Some policies will cover damage by pets, and some won’t, so it is worth making a list of all the what-ifs and talking to your broker about the coverage you have.
 
Loss of rent 
A burst pipe, flooding or fire can render your property uninhabitable for long periods while repairs take place. Think about what would happen to your bookings over this period? Refunding guests out of your own pocket can have severe financial consequences so ‘Loss of rent’ insurance should cover the cost.  Likewise, if an insured event makes your rental inhabitable whilst guests are staying, a comprehensive rental insurance policy should cover the expense of finding them alternative accommodation.
 
Theft and security
Your insurer will probably require certain security measures to be in force when your property is both unoccupied and occupied. These vary between insurers but may include specific door and window locks, shutters and alarms.
 
An important check to make is that you are covered for theft by ‘non-forced’ entry.  If for example, a guest left a window open or didn’t lock the door on departure and you were subsequently robbed – would you be covered?
 
Although incidents of theft by tenants are rare, if a booking gave false details with intent of clearing out your property of its contents, you will want your rental insurance to also cover theft by tenants. 
Local risks 

Claims support
Be careful when choosing insurance based on the lowest price if it is at the expense of being inadequately insured. Opting for cheaper lower coverage is false economy if the costs of being uninsured far outweigh any small premium savings.
 
Find out what support you’ll be given if something does go wrong and you need to claim? Will you deal directly with the broker/agent who sold you the policy and knows the policy in depth or would your claim be outsourced?  How quickly will a claim be dealt with?
 
Other things to consider when buying rental insurance
  • What would happen if a guest refused to leave – what are your eviction rights? Will your insurance assist?
  • Are your insurance terms altered when your property is unoccupied for long periods?
  • Make sure your property is kept in a good state of repair as insurance is not a maintenance contract and won’t cover general wear and tear
  • What shortfalls are there in the policy
When was the last time you evaluated your current insurance coverage to ensure you are protected against common risks when renting out your vacation rental?  If it was a while ago, it’s probably time to look it over, discuss with your broker and make sure every angle is covered.