Given the huge transformation the world is going through, the home sharing and property rental businesses have really taken off in the last two decades. Renting out spare rooms, a portion of, or even an entire house to earn some extra money, or a full-time income, has become increasingly common nowadays.
Each year the number of homeowners turning to property rental as a source of income is on the rise. One of the reasons for the increase in rental demand is globalization. With more and more companies going global, the need for both short and long-term rental properties has skyrocketed as professionals travel between a company’s various national or international branches. If you’re one of the many homeowners renting out part or all of their home, there are a few things you’ll need to keep in mind.
What is Important to Consider When Renting My Home?
One of the most important things to consider when renting out your home is short term or vacation rental insurance. When renting or leasing out your property, the risks associated with your house change. Most home insurance policies don’t cover any of the potential risks associated with renting, so it’s safe to assume that you should switch to a plan that caters to covering your home while listing on platforms like Airbnb, VRBO, or Homeaway.
Unfortunately, too many people aren’t aware of the risks of having inadequate coverage and many forget or even outright avoid informing their insurance providers of their plans to rent out their home. Oftentimes, rental owners are trying to avoid possible complications or higher premiums, but the risks of not carrying short term insurance coverage are far greater. Therefore, it’s highly recommended that you consult with an expert insurance provider to ensure that you’ve secured the right coverage for your home or rental property.
You’ll need insurance regardless of whether you plan on renting out your property on a short or long-term basis. Home insurance is advisable even if you plan to have someone house sit your property while you’re away for an extended period of time; for the simple reason of being covered against any unexpected expenses in case something breaks, your property is damaged, or its contents are damaged or stolen. Even if your existing home is already covered, it’s a good idea to make sure you’re aware of and understand what exactly you’re covered for, along with the specific policy terms.
Circumstances that Need Rental Property Insurance
Whether you’re looking for insurance coverage for your vacation home or investment property, you should opt for the best policy that suits your individual requirements – and this is where a professional insurance company can help. Let’s now move on to circumstances in which you’ll need insurance for your rental property, or when your insurance company would at least need to know about your intentions to rent your property:
If there’s a conference or event in a city or town and hotels are packed, it’s not uncommon for organizers to approach property owners to discuss the possibility of renting their property. If you agree to such an offer, you might not need to change insurance plans as occasional or one-time renting is covered to a certain extent by many homeowner insurance policies.
However, it would be wise to consult your insurance provider on this topic. However, even if you’re only renting out your property for a few days, you should still let your insurance provider know about your plans as they might point out endorsements to your policy that can give you broader coverage with your tenants.
Renting Out Your Home While On Vacation
Some insurance providers group short-term rentals, i.e. renting your property out for a few weeks or months, with occasional rentals. While you may not need to pay extra or take out additional coverage for short-term rentals, it’s still important to let your insurance company know about your intentions to rent and find out whether short-term rentals are covered by your existing policy. In most cases, additional coverage can also be purchased from insurance companies in the form of insurance riders.
Alternatively, your tenants may have their own homeowner, tenant, or personal liability insurance to protect them against damage or loss of assets. Bear in mind however that personal or homeowner insurance policies taken out by tenants may only provide minimal coverage, which may not necessarily cover the full costs of any damages incurred.
Additionally, make sure you determine whether local laws allow short-term rentals.
Interesting Read: Berkshire Hathaway Enters California Home Insurance Market
Property Rental as a Business
If property rental is one of your main sources of income, consider that you may need to take out a business insurance policy. As always, consult with your current insurance provider as to whether your policy needs to be changed to a business policy, bearing in mind that even short term home rentals can be considered a business if done so on a regular basis. As we previously mentioned, renting out your property exposes you to additional risks. In the same way, businesses have commercial risks which simply can’t be covered by personal insurance policies, since the latter are not designed for such.
In the eyes of the IRS, renting out a property for more than 14 days a year makes you a landlord. Therefore, whatever you earn from your rentals needs to be included in your annual income. You can, however, deduct rental expenses (to a certain extent).
The National Association of Insurance Commissioners (NAIC) considers property rental as a business if the property owner earns more than $2,000 from rentals in a financial year. However, rules may vary and are based on different criteria, which means that even rental properties with annual rental incomes exceeding $2,000 may not necessarily qualify as businesses. So do your research and keep your options open when determining whether to switch to a business insurance policy.
Inform Your Insurance Company About Short Term Vacation Rental Homes
According to the NAIC, if you are renting out your home on a regular basis and neglect to inform your insurance company of such, then there is every chance that they might drop your coverage when they find out. Therefore, whatever the circumstance, if you want to avoid financial losses or unnecessary stress it’s highly recommended that you disclose any rental activities to your insurance company.
While you may already be protected by a standard homeowner’s insurance policy, you should find out if and how you’ll be covered when hosting tenants within your property, what happens if you need to make a claim, and what you can do to avoid losing your coverage. Make sure you fully understand your homeowner’s insurance policy and whether it offers any protection if you decide to rent out your property. You may need to consider additional endorsements for short term vacation rental insurance.
Do plenty of research before deciding on a particular home or business insurance policy. Look up any related insurance documents or discuss your situation with experienced landlords. The internet offers a wealth of information on the topic of property rental insurance.
Last but not least, remember that landlord insurance policies only cover the property owner’s property and their assets, and that unless any alternate arrangements are made, tenants will need to take out their own renter’s insurance policy to protect their own personal belongings and furnishings.
Thanks so much for reading Why Your Insurance Company Should Know You Are Renting Your Home.
If you’d like more information about short-term vacation rental policies, please do not hesitate to reach out to our talented team.