Skip to content
Short-Term & Vacation Rental Discussions

User Stats

565
Posts
391
Votes
Kevin Lefeuvre#3 Coronavirus Conversation Contributor
  • Los Angeles, CA
391
Votes |
565
Posts

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

Kevin Lefeuvre#3 Coronavirus Conversation Contributor
  • Los Angeles, CA
Posted Oct 20 2017, 21:00

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.

Loading replies...