A quick reminder about insurance for your vacation rental

[Collin Hays]

If you are a new investor, make certain that you have a commercial policy specifically for overnight rentals.  A standard landlord policy, or homeowners policy, will likely not cover you if you have a claim.

Claims do happen.  Your two biggest risks are underinsurance and liabililty.

I had a cabin burn to the ground a few years ago in the Gatlinburg fire.  I was underinsured about $150,000, and that came out of my pocket to get it rebuilt. Folks tend to far underestimate the cost, and length of time, that it takes to rebuild from a disaster such as this. It took a year and a half and a lot of work, as well as significantly more dollars than I was insured for.

We had a slip and fall medical claim a few years ago that resulted in a settlement of over $200,000. I thought it was fraud, but the insurance company paid it. My property management company was "negligent" in keeping moss and algae from growing on the wood steps, rendering them slippery after a rain.  

Negligence happens, because we can't tend to every single detail all of the time.  But, you want to steer clear of gross negligence, as your insurance company may decline covering you if you were grossly negligent.  

Gross negligence refers to an act taken without exercising even the most basic amount of care owed to others, including guests and the property, itself. That means ignoring potential safety or welfare problems at your property.  That can be a very long list.  

If you are using a property manager, the burden - and much of the liability - usually falls upon them.  This is because you have hired them to mind and manage your property.

If you are self-managing, you want to be able to demonstrate that you are proactively looking after the safety and welfare of your guests and the property, through periodic, documented inspections.  If you have just purchased a property, it would be money well spent to have it inspected by a risk management consultant. Your insurance company will be happy to provide this in most cases.