Need insurance for STR/VR? Read this...

[Kevin Lefeuvre]

Like everyone here, in the past couple years I was anxious about my insurance coverage. I studied a few policies very recently and changed my provider. This post is to share my findings, and may help you in your assessment.

First let me share some general lessons (even though most of you already know): There are traditionally 2 categories of policies: Home owner (owner occupied) and Rental (LTR tenant occupied). Needless to say STR is new and almost no insurance provider has the perfect policy clearly covering the risks. STR has several characteristics that the traditional policies don't cover:

• Sometimes you live in there, sometimes a paid guest (a short term tenant) and sometimes it's vacant for a while.
• Tenants change often and they are new to the place, increasing both risks of damage and accident to themselves.
• Landlord runs an ACTIVE BUSINESS when running a STR (commercial policy covering loss of business among other stuff).

Another aspect to consider is the workers' comp. When you have a regular maid, a regular gardener or even a regular handyman, who are not independent contractors, licensed and insured, in case of accident, they "may" come after you based on the "regularity" of their employment. You may argue that you never "employed" them, but still you are at risk. Moreover in some states like California, offering workers' comp to employees is mandatory (even to part time employees). So if a judge requalifies your maid as a permanente part time employee, you are screwed.

Keeping the above in mind here's some policies I checked and my findings:

1) The famous $1M coverage by Airbnb and VRBO

Airbnb and VRBO both offer, at no additional cost, a $1M liability insurance. Sounds cool! If it sounds too good to be true it's probably too good to be true :) Well no-one knows. They don't publish any serious legally bind policy. One paragraph on a website, (to be compared to dozens of pages for any other insurance policy). Coverage not clear, exclusions unknown. It may work one day, but I won't risk a $1M property or even less by trusting them. Especially when the premium is officially $0. (I would want them to explicitly say that say 20% of their fees are to cover the insurance, just an idea...) Hopefully within a few years they'll mature, we'll have cases where they have paid claims and cases where they have denied and there will be documentation of all that, then I'll trust them. For sure, they do not cover the property damage, nor the personal damage or loss of business, and that for itself is a reason to look elsewhere.

Of coursing asking to cover workers' comp would be asking too much.

2) Slice (and other startups)

Better than the above, slightly better documented, but still totally immature: the reps are too young, not experienced. They are not suitable for California (here the state needs them either to be in the state and go through some solid financial background or to disclose to the consumer that if they go bankrupt the state will not cover them). Well, that does not help an out of state startup like slice.

Same situation as #1 in regards with the worker's comp.

3) HO3 by Farmers, AAA, Foremost, Nationwide, and many many others

This is what most Homeowners use (owner occupied). You buy them typically from Farmers, Nationwide, AAA, Foremost and many other insurers (yes Foremost is in this category too unlike some posts say in this forum that they cover STR).

The closest to ideal are AAA and Foremost. But none of them work for most of us. Here's why:

- Foremost policy, excludes "BUSINESS", and under the definition of Business, excludes "Rental of part of your premises for use as a dwelling for up to 2 roomers or boarders." (from page 2 of the policy). negative x negative = positive, so the above is a coverage. In other words all you can do is to rent to up to 2 guests inside the house where you live!!! Literally a joke since they sell this as a STR coverage. Foremost is sold by Farmer's brokers most of them have no clue what they are selling.

On workers' comp, foremost excludes explicitly the first 52 hours. Another joke. So if your maid spends 4 hours at your unit, the first 13 times she works for you, she's not covered. And if you change maid, the counter is reset to zero. And your handyman and gardener are practically never covered because of the same 52 hours exclusion.

- Nationwide has nothing for STR , nor Farmers.

- AAA's verbiage is much better. They have (page 13 of the policy) "renting, leasing or holding for rental or lease of a residence of yours on an occasional basis for the use only as a residence." It's not perfect but if you live in the same dwelling, like in a multi-family dwelling, then this may work. The word "occasional" is loose but not that bad.

AAA has a very good Workers' comp policy for Home Owners. Best coverage.

For someone who is renting out a few rooms in the house or a guest house or even a multi family building where he/she lives in one unit, AAA is the best I've found.

4) Commercial Coverage: CBIZ & Proper

They both cover the 3 situations of owner occupied, STR and vacant properties for personal liability, commercial liability, damage, etc...

They both cover loss of income as well.

None of them covers Workers' comp. (they are commercial, so they expect the business owner to have other insurances, since the size of the business may be variable).

None of them offers umbrella.

They both are supported by big fat public companies and we can trust them for stealing our money but hopefully they'll be there when we need them (humor).

CBIZ has a straight forward policy, easy to read and understand. Rep was clear and available. I noticed two issues: It's very expensive. About 2 x the price of the traditional HO3 in the cases I got quoted for and 20% more than Proper.

Proper has a LLOYD policy, directly under LLOYD brand. A combination of 10 different policies. Hard to read and understand, about 100 pages!!! But the "declaration page" helps. Rep was also knowledgeable and available. Deductibles are higher than CBIZ, but since we most likely only need them in case of big liability matters or house burning like claims, then maybe the high deductible is less important than the high premium.

CONCLUSION

For someone who is renting out a few rooms in the house or a guest house or someone living in a multi-unit house (Duplex, SFR with 2 living spaces, MF), I think AAA is a good balance between the risk and the cost, followed maybe by Foremost if the above issues are not a problem for you. The standard HO3 policy IS NOT RECOMMENDED.

For the "professional" STR landlord, or if you don't live in the house, even for one unit, I would recommend Proper (lower premium) or CBIZ (lower deductibles). In the quotes I received, for a property where the HO3 has a premium of $1000, (as an example) Proper would have a premium of $1540 and CBIZ $1850.

That was a summary of my findings, hope that helps and would love to read your finding or anything I got wrong.

[Nancy Bachety]

@Kevin Lefeuvre

A debt of gratitude for reporting your findings, first and foremost. Especially between Cbiz and Proper. With the costs you quoted, do you recall what the deductibles are? 

[John Underwood]

Kevin,

Thanks for publishing your research!

[Kevin Lefeuvre]

Originally posted by @Nancy Bachety:

@Kevin Lefeuvre

A debt of gratitude for reporting your findings, first and foremost. Especially between Cbiz and Proper. With the costs you quoted, do you recall what the deductibles are? 

 Thanks Nancy. The numbers there are not real just to show the proportionality. ($1000 as basis for the HO3, then the 2 others are multiples). The deductibles are modifiable (with impact on premium of course). And they change with the value of coverage too. Finally there is no deductible for liability (for both). So for further details you may want to reach out to them online. In both cases you have online quotes. (immediate for Proper, within 24 hours for CBIZ). Interestingly they both use the same tech tool for capturing customers info and generating quotes :)

[Kevin Lefeuvre]

Jeff, NREIG does not seem to have any product for STR. Good for flipping.

[Luke Carl]

I have commercial policies with my HO3 provider.  I read through every last detail. It does everything Proper does minus theft and cost me $600 less per year. I figure if someone steals my refrigerator I'm not going to file a claim anyway I'm just going to go get a new refrigerator. 

Proper was started buy a guy who was working for CBIZ and decided to start his own company underwriting the exact same policy for a couple bucks less through LLOYD. Either way they're both 400-500 more per year than my local guy. It's great to have relationships! 

OP might have mentioned many of the same points I didn't read everything that was posted. 

[BreAnn Stephenson]

Originally posted by @Kevin Lefeuvre:

Jeff, NREIG does not seem to have any product for STR. Good for flipping.

First, disclaimer, I work for a sister company of NREIG who provides loss prevention services (think preventing burst pipes, cooking fires, theft/vandalism) for their clients.

That stated...

Kevin, first of all, great breakdown of all the policies and coverage offerings... I'm sure many will find this post helpful!

Just wanted to clarify that NREIG does have STR offerings... along with other commercial coverage products, it's just separate from the main Program products offered for flips, sing fam/small multi-fam rentals and vacants.

Have a great day!

[Christina R.]

Thanks @Kevin Lefeuvre, great post. I am in a similar situation now and found the same exact things with respect to exclusions and coverage. Did you end up picking a company for your needs?

[Raul R.]

@Christina R.

As others in post mention look into NREIG, I recommend them..

[Paul Sandhu]

Thanks Kevin.  It was very informational to a lot of members on here.

I don't insure my places.  All I do is keep a security camera pointed at the front door and HDTV.  The only thing worth stealing is the HDTV.

[Kevin Lefeuvre]

Originally posted by @Christina R.:

Thanks @Kevin Lefeuvre, great post. I am in a similar situation now and found the same exact things with respect to exclusions and coverage. Did you end up picking a company for your needs?

Christina I should have updated the post since I moved my properties from AAA to AMIG. American Modern does have STR endorsement on their DP3 and price is reasonable.

Also I did try Proper for a very short period of time but cancelled because of their "sales" methods which didn't seem straight forward. They sign the contract get the money and then start disclosing exclusions in the contract based on the questionnaire which comes only after you pay. I had to cancel and talk to the CEO to get refunded.

[Kevin Lefeuvre]

Originally posted by @Paul Sandhu:

Thanks Kevin.  It was very informational to a lot of members on here.

I don't insure my places.  All I do is keep a security camera pointed at the front door and HDTV.  The only thing worth stealing is the HDTV.

#1 reason I looked into this is home owner liability, if the guests hurt themselves in the property and #2 fire due to guest's negligence, but definitely not theft.

[Christina R.]

Hi @Kevin Lefeuvre,

I am in agreement with you and also want the homeowner's liability in case of an unfortunate event. I don't have anything valuable in my rental unit. However, looking for home insurance for STR has been painstaking. It may be easier to leave the mafia! I am based in New York City and unfortunately, AMIG does not cover my area. AAA said they do not offer coverage for STRs, just a regular HO3 policy through Kingstone. Another insurance broker said they have Kingstone too and that they do in fact provide STR coverage. I have looked into them and the reviews are not great. Combine that with the conflicting information about whether they cover STRs or not - I am not sold on them. Geico actually said they have no problem with STRs and do not consider it business activity since it is owner occupied. However, they couldn't cover me because I have a wood frame house vs brick.

I reached out to other agents from State Farm (don't even bother, they do not cover STRs at all) and All-State (yet to hear back after 2-3 weeks). Haven't heard back from a few Farmer's agents for Foremost after 2 weeks as well. I believe they are related to AMIG, which do not cover my area. 

So that leads me to just CBIZ or Proper. CBIZ as you mentioned is about 20% higher. Proper has the same coverage as them, but I thought it was strange they wanted me to get a letter from a licensed plumber and electrician to confirm what type of wiring, etc I had. Then, a week later told me they waived it. So now I am concerned about the questionnaire you mentioned and sales methods. I don't mind paying extra for a good policy, but I like everything up front, no games.

Do you remember what their questionnaire was asking you and what exclusions they ended up adding?

[Kevin Lefeuvre]

Originally posted by @Christina R.:

Hi @Kevin Lefeuvre,

Do you remember what their questionnaire was asking you and what exclusions they ended up adding?

Yes, exactly what you said. If the house is old they want statements from licensed electrician/plumber etc. And if they don't see what they need to see, it will trigger exclusion of coverage.

AAA is tricky: if you tell them you do str they'll deny you. But if you don't, and you refer for yourself to the policy which explicitly allows "occasional" rental, you are good. Of course I am not a lawyer and this is not professional advisory. That said I was under AAA when I started str in a duplex.

[Kevin Lefeuvre]

And sorry for the delay and not being as active here as in the past.

[Jeremy W.]

Thank you, Kevin. This is great!

[Adrian Carr]

@Kevin Lefeuvre

Four years later... what's your opinion on AAA now? Also, what do you think of Geico? That is who I have signed up with as a new STR investor as they said they do cover it but have yet to make any claims. Lastly, should I make sure Geico, AAA (whoever) covers workers comp? I will have contractors at my property doing some work. GC says he has workers comp but should I also make sure I have it in my insurance policy?

Thank you

[Charles Breunig]

@Adrian Carr Your insurance broker (or google) should be able to help explain workman's comp in your state in more detail. You don't need it on your GC as they would be required to cover it - ask your broker.

Here is my short version:

Workman's Comp has always been a separate policy from my BOP, Liability, Employer Practices, HNOA, Etc, sometimes one carrier writes all, sometimes we have different carriers for certain types of policies.  ie, it's not included.

You purchase a W/C Policy based on your estimated payroll for your business, in my 35 years, the carrier always does an audit of your payroll (Policy Period Payroll Register by job class, 941's Etc) They will bill/refund you the difference of estimated vs actual.

Your state law determines if you are required to have it (typically 4-6 employees), even though you can still purchase employee coverage if you are below the minimum required. (Might be 1 Employee if a hazardous business)

Rate per $100 of payroll varies greatly depending on the worker classification in each state. ie sales/administrative might be at .8 per $100, a delivery driver at $6 per $100, a roofer at $20 per 100.

Hope that makes sense.