Buying a vacation rental home isn’t as exciting of a process as it may look on TV. It involves a lot of paperwork and finances to bring you to that happy closing day. But if you haven’t purchased vacation rental home insurance yet, you’d better start shopping around. Here’s what you need to know about buying vacation rental home insurance before closing.
DO I HAVE TO BUY VACATION RENTAL HOME INSURANCE BEFORE CLOSING?
Just in case you think you can get out of vacation rental home insurance, yes, you do have to purchase it for at least a year in order to close on your home. In order to protect their investment (your new house), lenders require you to cover your home against disasters.
Until you have paid off your mortgage, your lender as the stakeholder has the right to hold possession of your property to protect what is technically their property. Vacation rental home insurance is designed to protect both you and the lender. This is why lenders typically will not agree to lend you the money for your vacation rental home until they know it will be protected.
Additionally, keep in mind that there are some advantages to paying for vacation rental home insurance up front at closing. In some cases, you can exclude that premium from your closing costs.
HOW MUCH COVERAGE DOES MY VACATION RENTAL HOME NEED?
Vacation rental home insurance policies can protect the physical structure, your belongings on the inside, and the cost of medical expenses for a person injured on your property. Whether you plan to rent your second home short-term to vacationers or long-term to a tenant, you will need to have the appropriate type of landlord coverage.
The amount of coverage you need often depends on your lender. However, the general rule is that you need enough to cover the cost of rebuilding the home from the ground up in case of disaster.
STANDARD VACATION RENTAL HOME INSURANCE COVERS
- Damage from the weight of ice or snow
- Explosions
- Falling objects, such as tree branches
- Fire
- Frozen plumbing, heating, AC, or other household systems
- Hall, windstorms, and lightning
- Smoke
- Theft and vandalism
- Damage from vehicles
By having vacation rental home insurance, you and the lender are protected in the event that the house is damaged or destroyed. You may also choose to purchase additional coverage, such as flood or earthquake insurance, depending on your situation.
TYPES OF VACATION RENTAL HOME INSURANCE
Replacement-Cost Policy – This type of policy covers the current cost of replacing your vacation rental home. For example, if you were to buy an older home with unique features, the cost to restore it may be higher. A replacement-cost policy runs about 10 percent more than a cash-value policy but will cover the cost of rebuilding.
Cash-Value Policy – This type of policy costs less than a replacement-cost policy and covers the market value cost of your vacation rental home and its contents. So rather than reimburse you the amount you paid for something, you will only get back its depreciated value amount.
While some types of insurance may be optional, vacation rental home insurance is a must. You do always have the option of finding ways to reduce your premia such as by adding security systems, storm shutters, or deadbolts.
We’ll shop around for you to find the best policy with the right coverage and price. Let us know how we can help you by giving us a call today.