Insurance Concerns for Your Investment Property

09
May 2019
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The popularity of investment properties is on the rise.

It’s becoming more and more common for people who already own a home they live in to buy a second home as an income-generating investment property.

More than 60% of people who own a vacation home rent out their second home for at least a portion of the year to help cover the costs of keeping it.

Many people will buy a second home that doubles as both a family vacation home and a rental property. While this investment can bring a lot of extra fun as well as extra income, it also comes with its own set of risks.

It is not uncommon for vacation homes to be located in areas that come with specific risks, such as theft, vandalism, flood, wildfire, or hurricane.

In addition, renting out your second home for income opens you up to the possibility of incurring losses because of damages caused by those renting your home.

While you may think you’ve covered your bases with a second homeowners insurance policy for your vacation property, you may not be protecting your property with the right coverage.

Vacation Rental Investment Property Coverage

An investment property requires more coverage than a homeowners policy can offer.

Designed to offer coverage for properties that are owner-occupied, a regular homeowner’s policy - isn’t meant to protect a home that is used to bring in extra income.

There are some basic coverages that every investment property should have, but your’s may need some additional coverages depending on certain factors.

Learn which insurance concerns you should have for your second property and how to properly protect your investment.

Insurance Concerns for Your Investment Property

Damage to Your Investment Property

Your family christened your Florida vacation home ‘The Beach House’ for a reason. Walking right out of the kitchen door and onto the sand, your investment property is also where your favorite escape.

But being located in this beautiful and serene spot comes at high risk.

At certain times of the year your investment property is vulnerable to the high winds and hurricanes that are common on the Southeast coast.

If your investment property suffers extensive hurricane damage can you afford to pay for the repairs?

Protect Your Investment Property with Comprehensive Property Coverage
Offering coverage for most perils that aren’t excluded from your policy – such as flood or earthquake coverage exclusions – comprehensive property insurance helps pay for damage that your investment property incurs.

Certain, Specific Damage to Your Investment Property

In the above example, you know your vacation home is susceptible to damage from wind or hurricane conditions. Opting for insurance that specifically covers those risks can be a more affordable solution to protecting your investment.

Protect Your Investment with Named Peril Coverage
Typically covering losses for damaging events such as hail, fire, or windstorms, named peril insurance offers coverage for perils that are specifically named in your policy.

Because named perils coverage isn’t as broad as comprehensive coverage, it is typically a lower-cost policy. But buyer beware: if you decide that a named peril policy is the right fit for your budget, know that anything not listed on the policy won’t be covered.

Damaged Items Replacement

The luxury hot tub on the deck of your cozy Lake Tahoe cabin is your favorite part of your investment property and makes it especially attractive to people looking for a vacation rental. Unfortunately, a very old pine tree on your property took a dive right onto it. Luckily the deck didn’t sustain much damage, but the spa is done for. Buying it once was enough. You’re hardly able to shell out that much money again yet you don’t want to lose your vacation home’s best feature. With the right coverage in place, you don’t have to say goodbye.

Protect Your Investment with Optional Replacement Cost
Assuring that you will receive comparable quality and materials – without depreciation – optional replacement cost coverage will help replace damaged items with new property.

Damaged Items Reimbursement

Your desert oasis vacation home in Santa Fe is in a stunning location with gorgeous vistas. But sometimes the heat drives you – or renters – inside to the comfort and allure of a big screen TV. Unfortunately, one of your renters accidentally knocked your 60-inch plasma screen investment off the wall, completely destroying it and the entertainment center that it landed on.

Can you afford to pay the full cost of replacing both items? Maybe you can pay for part of both but can’t foot the whole bill. With the right coverage, you won’t be stuck coming up with all the cash necessary to get your investment back to normal.

Protect Your Investment with Actual Cash Value Coverage
While it does include a deduction for depreciation – based not the age and value of the item or home – actual cash value coverage will help to repair or replace covered property damages.

Third-Party Injury or Property Damage

Imagine the above scenario, but the television lands on the renter’s foot and breaks it, landing her in the hospital with hefty medical bills.

In today’s litigious society, it’s very likely that she’ll be coming after you in court for reimbursement and, possibly, additional money for pain and suffering.

Can you afford the high costs of a long, drawn-out legal battle? With the right coverage in place, you won’t have to foot the bill alone (pardon the pun).

Protect Your Investment with Liability Coverage
Protecting you from losses in the event that third-party injury or property damage takes place at your vacation home, liability coverage can help pay the costs for medical bills, lost wages during recovery, and costs associated with a lawsuit.

Loss of Rental Income During Repairs

Can you afford to continue paying the mortgage on your investment home while it is being repaired after it was damaged by hurricane winds or a falling tree?

With the right insurance in place, you won’t have to juggle money and reallocate funds in order to cover all the costs for mortgage and utilities on your vacation home.

Protect Your Investment with Loss of Rents Coverage
Designed to help you recover lost gross rental income until repairs are complete, loss of rents insurance can help reimburse you for the income you would be receiving if your investment hadn’t been damaged in the first place.

Damage Caused By Vandals

Your investment vacation home in Malibu sits empty for at least half of the year, and you’ve taken precautions to ensure that it is well-lit and alarmed. Nevertheless, a group of mischievous teenagers who’ve noticed that it sits empty decided to unload their paint guns on it one night.

Your landscaper discovers the damage five days later and informs you that you’re going to have to have your house repainted.

Don’t get stuck paying to repair damage caused by vandals when your house sits empty.

Protect Your Investment with Occasional Rental Endorsement (or Short Term Rental)
When your vacation rental investment home sits vacant, an occasional rental endorsement can help protect you against losses from vandalism, malicious mischief or other risks.

An investment property comes with a set of specific insurance concerns. Be sure that you carry the proper coverages to protect you from losses and keep your investment making money for you.

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