Many people have taken advantage of lower interest rates in recent years to purchase a second home or condo that they can use as a source of income through renting it out as a vacation rental. This can be quite a lucrative venture, as some desirable rentals in resort areas (such as on a lake) can fetch $700 to $1000 per week from tourists and travelers. If you are renting your home to strangers, you’ll want to make sure that you have the proper insurance to cover you. Your standard homeowners or condo association policy might not be enough.

For example, a condo association generally has a master insurance policy or a blanket policy that covers the common grounds and insures the exterior walls of the building but won’t cover the interior walls or contents of the building such as furniture. They also won’t cover your vacation renters if they are hurt on your property. For those situations you’ll have to purchase your own condo or homeowners policy that includes liability coverage.

If your vacation rental is on or near the coast or in a floodplain, you’ll also want to consider purchasing hurricane or flood insurance. Hurricane coverage is generally flood and wind coverage, which are purchased separately from your basic homeowner’s policy. If your vacation rental is in a high risk area, the premiums for these types of coverage will be more costly. You will want to do some of this insurance shopping – especially special insurance endorsements such as flood coverage – before you even buy a vacation rental property. This is because you may find out the “great deal” you are getting on a mortgage payment on a rental property might not look so great once you add hurricane insurance premiums of $3-$4,000 per year to your monthly house payment. This can seriously cut into your potential profit on a property.

Another additional insurance coverage you may want to look at is rental insurance which covers your property in case you have a loss of rental income due to a natural disaster, flood or fire. If you are counting on a regular rental income in order to make the mortgage payments on your rental property and you suddenly lose those payments, you could be in danger of foreclosure.

There isn’t really an entire policy designed specifically for owners of vacation rental homes or condos, so you’ll have to work closely with your insurance agent and ask a lot of questions about your coverage to design a policy that works for you.  Don’t just hope that your regular homeowners or condo association insurance master policy will protect you. Once a claim is filed, such as a personal injury claim, and the insurance company finds out the home is a rental and not your primary residence, they may decide to cancel your property or deny the claim.  In that situation, you could be out thousands of dollars of your own money. Be smart and get the right coverage. Make sure it is affordable and makes sense before you buy a property. Remember that a vacation rental is really a business, and should be covered just like a business would.

If you want to know more about home or condo insurance, click here to get a free Arizona Home Insurance quote or a free Arizona Condo Insurance quote.

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The relationship that you have with any insurance company becomes stronger when more and more policies are tied to your account.   It only makes sense that if you are bringing more dollars into a business, that business may want to spend more time, effort and energy in serving you, their client. This additional service may be the added time to answer your questions, find additional discounts that you may qualify for if other conditions are met, or simply the one on one relationship that you might expect from the company that is financially protecting your hard earned assets.  As your life changes and your insurance needs change over time, it is beneficial to do a complete review of the policies and keep them “tuned” to your changing needs.  I believe that this kind of review is important at least every 5 years and sooner if you have life changing events like a new baby, a new spouse or divorce, or a change in work or a move to another home.

Insurance discounts vary from company to company and can “slip” off if you are not paying attention.  All students should be checking to make sure that the “Good Student” discount is still in place.  Every 6 months, this massive discount may need to be re-qualified for by providing a copy of your grades… These can be huge dollars that should remain in your pocket, if you had simply forwarded the information on to your insurance carrier.   Be sure to ask your specific company for all available discounts and what it will take for you to get them!

Some of the biggest discounts for drivers under the age of 25 is simply letting the insurance company know that you are now married or that you have become a parent.  These life changing events tend to affect the cost of your auto insurance in a wonderful way!  Moving into a less populated area, being able to park your car in a garage vs parking in an open area, having an alarm on your car… are all chances to lower your insurance costs.

Regardless of the name of your insurance company or agent, having the ability to communicate and ask questions is the ticket to reducing the overall cost of your insurance.  Making one call to one agent, who knows who you are,   is preferable to calling a telephone tree and speaking with a new “REP.” every time.

Today we are seeing more and more Mortgage Companies demanding that the new owner provide a Condominium Unit owner’s Policy. This policy must include “Building” coverage adequate to protect the mortgage amount. In essence, the new requirements, mandated by the Lender, does not recognize that a master policy exists. This is forcing the new owner to pay additional money for duplicate coverage.

The recent downturn in the economy, and the number of HOA’s that are no longer financially sound is probably the reason behind the mandatory requirement of a separate policy. We are seeing many HOA’s letting policies cancel for non-payment. If an HOA is having a hard time paying for insurance, they are usually having a hard time paying for normal maintenance. These Condominiums are also susceptible to higher claim frequencies. The first time that many individuals and Mortgage companies find out that there is no insurance on a Condominium is after the claim!
My personal preference is to always purchase a separate unit owners insurance policy that will protect my “stuff”. My “stuff” includes:

1. Personal belongings (contents)
2. Building Coverage (so that I am not relying on someone else to protect one of my largest assets)
3. Personal Liability protection (If I get sued because someone tripped)
4. Loss of Use (I need a place to stay if the Condo is destroyed)

Even if I plan on renting the Condo for investment purposes, It is just as important, if not more important to have a separate Rental Condo Unit Owners insurance policy. This policy protects my interests as a landlord and the policy includes:

1. Business Contents (Washer/Dryer etc.)
2. Building Coverage (so that I am not relying on someone else to protect one of my largest assets)
3. Land Lord Liability (If I am sued in a business capacity)
4. Loss of Rents. (when I can’t rent the condo because it is being repaired)

Condominiums continue to be a great way to own a residence and have some of the responsibilities of home ownership passed on to the association. Keep in mind that this is also a double edged sword. You should be vigilant in knowing what is going on in your HOA. You should make some of those meetings and understand how financially sound the HOA is. Those people who show concern and ask questions, are also asked to share in the responsibility of governing the HOA . This brings a whole new set of issues and considerations on your part. All in all, condo ownership fits the needs of some people, in a price range that can be more affordable than a free standing house and may be just what you need. Click here for a free Arizona Condo Insurance Quote.

Insurance Brokers

If you think that someone else is taking care of the insurance for you, I would caution you to think again.  The Association may have a “Master policy” that insures the structure, but chances are, that policy has a very high deductible or may only be covering the outside walls.  YOU NEED to know what that Master policy covers.  It makes little difference if you own a Condo to live in or you have purchased it as investment property…. The CONDO INSURANCE policy you purchase needs to include what the Master policy does not.

The Association’s CC&R’s (Codes Covenants and Restrictions) are the ultimate laws that direct how insurance issues will be handled.  Who is responsible for the damage to interior walls, fixtures, flooring, roofing, heating and cooling?  If it is the Association’s Master policy, who is responsible to pay the deductible?  How high is that deductible?  These questions are better answered before lightning strikes or the toilet overflows for 8 hours!

Besides the physical damage to the structure, each owner should also take into consideration the replacement cost value of their contents inside the condo and most importantly, the liability issues associated with home ownership.  The Master policy purchased by the homeowners association does nothing for your personal property nor  does it provide you with insurance for your personal liability exposure.

Finding out at the time of a catastrophic claim is the worst time to find out that your HOA ( Home Owners Association) just reduced the monthly association fees because they stripped the master policy of protection that you were counting on.  What this means, is that keeping aware of what the Board of Directors are doing is also critical in protecting your home.  I have found that every few years, the newly elected Board of Directors review the association’s balance sheets and when they see the high cost of insurance, start working to bring that figure down.  Make sure that you are on their mailing list for “News about the HOA”.  Many times, this important information is sent to the Condo unit’s address and not the mailing address of the owner!

If there was one thing that I would wish that all my Condo clients would do, especially in Arizona, is to invest in a water shut off valve to the house, making an easy place to turn off all the water.  One of the leading causes of Homeowners claims in Arizona is plumbing related water damage that occurs while the owner is away.  Living in Arizona and dealing with dry heat, most Arizonans try to get away during the hottest part of the Summer.  This is when rubber hoses on the washing machine tend to dry and crack and also when supply lines to the toilets tend to lose their “grip”.  It would be a dream come true if the water was shut off before this happened!

Please visit our website for a free Arizona Condo Insurance Quote.