Do I need a business insurance policy for my rental property?
There are a few scenarios where you will be required to have a business insurance policy to adequately protect your rental property, and it all depends on the nature of your property and how you rent it out. If you have landlord’s insurance, you won’t need business insurance for long-term, residential rental situations, but it gets a little bit more complex than that.
Let’s look at the 4 main rental scenarios:
#1 - You are renting out a unit within your primary residence:
Let’s say you have a spare room, or a converted basement, attic, or garage, and you decide to rent it out to your childhood best friend as her long-term rental. Chances are, your standard homeowners insurance will cover the rental unit, but only in so far as you are living in the same home as the renter, and the renter is living there on a permanent basis. In this case, you’re not operating a business, and would not need a business policy.
Let’s say you live in a tourist city and you had two extra bedrooms in your large home. You see the opportunity to make money on short-term rentals and enlist your rooms on peer-to-peer booking websites like VRBO, Airbnb, or Homeway.
Two things can arise from this scenario:
If you rent your rooms on a regular basis, to various renters at different times and make regular income, you would essentially be running your home like a hotel or bed-and-breakfast, which would require you to purchase a business insurance policy.
Depending on the insurance company, you may be able to cover your rental with your existing homeowners policy, if you are renting out your rooms on a short-term basis, every once a while, but not frequent enough to constitute an ongoing business.
#2 - Your are renting out your vacation home:
Most landlord policies include an exclusion about short-term rentals, and your homeowners policy will definitely not cover short-term rentals particularly if it’s a non-owner occupied property. The nature of risks and liability is different than a homeowner or a landlord, so in this case, you would need to treat it as a business. Most policies that address short-term vacation rentals (usually under 6 months), are written as a business policy.
Let’s say you rent house out to short-term renters who stay for the weekend or for as long as an entire month. Those who are renting the house are expecting to rent a safe, clean space that is maintained by the owner. If a guest slips and falls in the bathroom because the shower floors have become grimey over time, then the guest can sue the owner, and the owner would be found liable. Only a business policy would cover this liability.
#3 - You are renting out your second home/property:
If you are renting out your second home to long-term renters, you would not need a business policy. Long-term leases do not constitute a business. Instead, you would need a landlord’s insurance policy. In the same example above, those who are residing in the rental home would be responsible for the maintenance of the bathroom shower so that if it gets too grimey, the burden of the claim would fall on the renters directly, not on the landlord.
#4 - You are renting out your various units:
If you are a professional property manager or owner and rent your properties out as a business, it means that you are carrying out business activities. You may have frequent transactions involved between various parties, and perhaps a part-time staff to help you manage all your properties. These activities require a business owner’s policy.
If you’re a landlord or a property owner trying to determine what type of insurance to get, reach out to an independent insurance agent (844-837-2869) who can help you identify the right insurance formula for your situation.