Turning Your Starter Home Into A Vacation Rental? What Insurance Do You Need?

Whether you've recently upgraded from your starter home into a larger abode or are planning to relocate to another state but don't want to sell your current home, you may be investigating your vacation or short-term rental options in lieu of sale. Often, keeping your home and renting it out instead of selling can be a wise financial maneuver, especially if you're in a popular or desirable location -- however, with a 20 percent chance that a vacationer will be injured on his or her trip, having the proper insurance to shield you from liability is key. Read on to learn more about making wise insurance choices when converting your current home into a short-term rental. 

What insurance do you need to protect your assets if someone is injured while renting your property?

Even if you're renting your home out quietly -- soliciting recommendations from friends and family members rather than advertising your home for rent on websites or social media -- it's unlikely that your homeowners' insurance coverage will provide you with much protection if you're providing the use of your home in exchange for money. Doing this puts you in a landlord position, even if you know your renters personally, and any claims you submit under your homeowners' insurance policy are likely to be denied on this basis.

Instead, you'll want a business or commercial policy geared specifically toward rental owners. Not only will this type of policy provide you with the protection you need, it will ensure that your insurance agent is well-versed in the specific issues and challenges you may face as a landlord, giving you strong and accurate advice to any questions you have. 

You may also want to consider the purchase of an umbrella insurance policy as an additional hedge against liability. This policy will kick in when the limits of your primary insurance policies have been exhausted, protecting your assets from garnishment or seizure if an injured tenant wins a judgment against you for more than your insurance company is willing to pay. Because this type of insurance is essentially catastrophic, it's usually available at a low monthly cost compared to its coverage limits. 

What else should you keep in mind when insuring your rental home? 

Another key component to the rental insurance equation involves damage to your own home. While most landlords will assume a baseline level of wear and tear (and price this into their rental rates), vacation homes can be even more susceptible than many other types of rental real estate to major damage by tenants, and it's unlikely any deposit you collect will come close to covering repair costs. Ensuring that your insurance policy will reimburse you for any damages caused by tenants (and will do so without significantly raising your rate after you've made a claim) can give you some peace of mind.