Denied umbrella policy with short term rental

6 Replies

We are closing on our first rental house in a couple of weeks.  We are considering doing a short term rental (Airbnb, VRBO) for the first year until our daughter moves into the house for college accommodations.  She will then find roommates and live very cheaply as a resident landlord.  We have all of our insurance with USAA (cars and primary house) as well as a $5 mil umbrella policy.  The premiums are about $2300 per year for the umbrella.  When we spoke to USAA about insuring the new rental house, they said that they would not renew our umbrella policy if we had a short term rental in South Carolina.  We could stick with the long term rental and keep our current insurance.  Or should we shop around for a new umbrella policy and a policy to insure a short term rental?  Any suggestions?  

Financially, it might be better from a cash flow perspective to do the long term rental. However, I can involve my wife and kids in the business of managing the short term rental and this has value above and beyond the cash flow.  I would consider it cheap education if we lost a few thousand in rental income by trying Airbnb.

Geez, Frank...I think the answer is in your post:  better from a cash flow perspective, keep your long-time insurance policy in place - long term rental sounds like a plan.  And, did you ask why USAA would not insure a short-term rental property?  In Florida, almost all municipalities have zoning which prohibit short-term rentals.  That doesn't stop people from doing it (mainly homeowners) but the fines are stiff if cited.  My investor clients have no interest - nor do I - in the short-term business and the people I know who do it and claim to be hitting it big actually have left money on the table by not going longer term.  Hope this helps...

@Frank C. You may be able to get a commercial liability policy with $1 mil or $2 mil limits that would eliminate the need for the umbrella on that property. If USAA still gives you trouble you could quit claim it to an LLC.

I think your problem is that USAA doesn't offer any products that account for the unique risks associated with bed and breakfast/ short term rental businesses. I think this is their way of saying "we still want the rest of your business, but we dont want anything to do with insuring your Airbnb business." The problem is that if you go elseware for your umbrella, then you have to switch over all of your other policies (both for administrative reasons and so they can track to make sure you always have minimum coverage on your dwelling policies and everything is synced. Insurers dont like to have part of a portfolio when covering umbrella based on my experience.

Looks like you need to look outside of USAA to find solutions to insure your entire portfolio to include business and personal/ auto. I dont think USAA does alot of commercial anyway, but you'd have to check. Maybe an independent agent associated with Assured alliance which has a large presence of agencies in SC and they have access to many insurance products. I have no experience but I'll tell you its really nice to have a dedicated independent agent who knows your portfolio, can shop it around, and you can call/ email to update and add new policies vs. generic customer support and having to go through a phone tree. it was a no brainer for me after I maxed out number of rental units they allow with Geico.

http://www.assurealliance.com/our-members

Excerpt from article:

  • Renting out all or part of your home or property more than once to guests (whether you’re living there full time or not) is often considered business use by insurers, which means you’ll need a business (or commercial) policy on top of your homeowners policy. Specifically, you’ll need either a hotel, vacation rental, or a bed and breakfast policy even if you only rent your place on a homestay site once or twice a year. Some insurance companies offer month-to-month homesharing liability policies (but make sure to check exclusions or limitations).

https://www.thezebra.com/insurance-news/3836/5-ins...

USAA can act as your agent for an umbrella policy with their partner RLI as the carrier in this case. You don't need to switch over any of your other policies, you just need to make sure you meet the minimum coverage requirements.

Hi Frank - just learned today USAA cancelling our umbrella bc short term rental. Read your post from awhile back. Same situation as us. Curious what you ended up doing. We also have everything thru USAA as of rn.