When and Why to Consider Increasing Your Short-Term Rental Insurance Coverage

Knowing when to increase rental insurance coverage for your short-term rental properties can be tough. You don’t want to spend more money than you need to on insurance protection, but you also don’t want to wait until disaster strikes to consider whether you have enough protection. At that point, finding out you are underinsured could be catastrophic for your business and your bank account. 

Fortunately, there are certain signs you can watch out for that can tell you when to increase rental insurance coverage.

You’ve Added New Properties to Your Portfolio

As your vacation rental portfolio grows, it can be even more essential to understand when to increase rental insurance coverage to ensure all of your assets are adequately protected. 

If you’ve got a blanket policy that applies to all properties, you should consider upping your coverage limits any time you add a new asset to your portfolio. This is because managing a larger number of properties increases your overall risk exposure.

You should also consider the individual risks associated with each property. For instance, a property that’s filled with high-end furnishings or is located close to areas prone to natural disasters can be a risky investment. While you could enjoy strong returns, you’ve also got to protect yourself with a robust policy.

You may want to add special protections to your policy as well, such as lost rental revenue protection, during the months following the purchase of a new property. Chances are that buying a new rental investment will strain your cash reserves. But spending a little extra for lost revenue protection can prevent a cash flow disruption during this vulnerable time.  

You’ve Renovated One or More Properties 

Many property managers wonder when to increase rental insurance coverage after making significant renovations or upgrades to their vacation rentals. Generally, you may need to update your coverages if your renovations:

• Add significant value to the property
• Create new risks, such as with swimming pools or hot tubs
• Make the home unique or substantially different from neighboring properties

For example, suppose that you install a new pool. Your property’s liability risk can increase, and you may need additional coverage to protect against potential accidents. Similarly, if you’ve added luxury furnishings or upgraded appliances, you’ll want a policy that can cover the increased value of these items.

General maintenance upgrades like a new roof or flooring probably won’t substantially increase the value of your property. In these instances, your existing policy can likely offer adequate protection. 

Values Have Substantially Increased in Your Area

The real estate market has been hot for the last few years, and virtually every market has seen an increase in prices. However, some areas have seen a particularly steep rise in values.

Examine the homes in your portfolio, and pay special attention to any properties in these high-value areas. If values have increased and you haven’t adjusted your policy accordingly, you could be setting yourself up for disaster. Make sure your policy can cover your replacement costs in the event of a total loss. 

Your Properties Are Highly Customized

Customized properties can be difficult to value and insure. You can’t use the average home prices of neighboring properties if your asset is filled with highly personalized amenities. Instead, you need to periodically revisit your policy to ensure it offers adequate protection. 

Consider items in the home that are difficult or impossible to replace. Give your insurance company the most accurate value estimates possible so that they can write your policy accordingly. Be sure to make note of any big-ticket items, such as a custom fireplace or luxury spa-style bathroom. 

A Cash Flow Disruption Could Derail Your Business

How resilient is your business to a prolonged cash flow disruption? Suppose that one of your properties is at a total loss due to a fire, and it takes six months before you can rebuild and start hosting guests again. How would you fare in the meantime? 

If the thought of losing rental income for six months makes you shudder, it’s time to consider increasing your short-term rental insurance coverage. Specifically, you need to add income loss protection to your policy. With this protection, your insurer typically pays you a percentage of rental income based on your nightly fees and average occupancy rates. 

It’s Been a While Since You’ve Reviewed Your Policy

You should review your short-term rental policy at least once a year, even if you haven’t made any big changes to your homes or portfolio. Look over everything, including coverage limits and deductibles. Pay special attention to the exemption clauses, and make sure your provider hasn’t added any new exclusions. 

You should also review these coverages before adding certain amenities that may be considered risky, such as a pool, outdoor kitchen, or hot tub. You don’t want to invalidate your coverage or drive up rates to unsustainable levels simply because you failed to read the fine print on your policy. 

You’re Relying on Coverage Provided by Booking Platforms 

The major booking platforms often provide host damage protection and liability insurance. While you should take advantage of these offerings, you shouldn’t rely on them as your sole protection against damage or personal injury claims. There are simply too many gaps.

Most notably, these policies don’t provide any protection against lost revenue. So if your property becomes uninhabitable due to damage, you may be stuck footing the bill. 

However, a custom short-term rental policy from a reputable provider like Safely can offer all of the protection you need. We provide everything from lost revenue protection to liability and damage protection so that you can enjoy more peace of mind. 

Need a New Policy? Safely Has Got You Covered 

Knowing when to increase rental insurance coverage can help you effectively safeguard your livelihood. If the time has come for a new policy for your properties, Safely has you covered.

Safely specializes in serving short-term rental property managers with portfolios that include 20+ properties. Our coverage can help you protect what matters most. Ready to learn more? Connect with Safely to obtain a quote today.