Insurance is one of those weird things that you’ve got to have and hope you never use. It’s like a seatbelt. You have to wear your seatbelt to avoid a ticket; you have to have homeowner’s insurance if you have a mortgage. However, because property ownership has changed markedly in terms of VRBO rentals and renting out rooms, you may want to look at different types of insurance.
Figure Out What You’re Covering
If you are living in a rental, you need renter’s insurance to cover your possessions. Your landlord may offer extra coverage that you can pay each month, but it’s likely that such a policy will not cover your belongings in the event of theft. If the landlord’s property is damaged by fire, flood, or storm and you have purchased this extra insurance through them, your belongings that were burned up, flooded, or blown away will be covered. If you don’t get the option to buy extra coverage through your landlord, make sure that your renter’s insurance will cover those cases.
Those who live full time in the only property they own (or have a mortgage on) will need homeowner’s insurance. Replacement insurance may be more money than other options, but it means that the really expensive stuff, such as your roof, cannot age out of the system. If you really need a lower insurance rate, you may have better luck getting a replacement policy with a higher deductible as long as you also put the deductible amount in easily accessible savings.
If you rent out your home to vacationers during the busy tourist season, it may be a good idea to add a short-term rental insurance policy in Arizona or other US states. This policy can also be an excellent supplement to a basic insurance policy on an investment house or apartment. The big deal about this extra coverage is that you get to enjoy coverage on your
- the interior if your tenants have an out-of-control party
- furniture if your belongings are damaged
- appliances if tenants are careless or destructive
One of the best things about being a short-term vacation rental owner is that you can be very fussy. The very eager client that you don’t rent to can be the best $300 weekend that you eat. If you get this insurance and do need to rely on it too often, the cost will likely go up and you may lose access to it.
Again, let’s go back to the seatbelt analogy. Your seatbelt and airbags may save your life. They will also bruise you. You’ll get a neck burn and a pretty nasty bump where the airbag pushes your glasses back on your nose into your face. If you need to test the capability of your seatbelt once or twice a year, you’ll probably need to go to driving school.
How To Cut Your Insurance Bills
If you’re new to the landlord or vacation rental owner business, it may be time to go looking for new insurance. Focus on your biggest possessions: House and car are top of the list. If you need or want supplemental insurance, make sure that each policy you’re reviewing has access to these extra policies and go for the best price. Bundling insurance is one of the best ways to keep costs low.
Do check the reviews to determine the payout schedule. If you get a great deal on car insurance but it takes 18 months to get a payout after your wreck, it’s not a good policy. Your insurance needs to be both fast and fair. Whenever possible, make sure you have a local agent that you can contact when things go sideways.
If you’re using your rental income to pay off the rental property mortgage, you may not be anywhere close to paying off those properties. The faster you can get your mortgages paid under 80% to avoid private mortgage insurance or PMI, the sooner you can start putting more money against the principal. It may also be the time to check the current value of your property; if you’re already paying PMI, you may be able to get the value of your property re-valued and get the debt reconsidered or refinance one of them up to that 80% valuation to knock down the debt to value ratio.
Getting your debt to valuation under 80% will not change the insurance premiums on your home. It may free up money each month that you can put on the principal. It may also impact your credit score.
Check Your Credit Score Frequently
A poor credit score will have an impact on your car insurance rates. Here’s the thing to consider before you find cheaper car insurance: Yes, you may find cheaper car insurance. However, you will lose your bundling discount. If you’re bundled, never split your car insurance out just over the rates.
One of the simplest ways to protect your credit rating is to pay at least the minimum as soon as the bill comes in. Go old school; book the payment immediately and write out the remainder of the balance to keep it front in your mind. The better your credit rating, the cheaper your vehicle insurance.
Don’t Get Blindsided
If you’re bundled, any changes in your insurance use will impact your total insurance payout. If you sell a rental house and get a refund on that policy for the remainder of the year, you will probably see higher car insurance. If you get a DUI and have to get different car insurance, your homeowner’s insurance will cost more. Bundled policies are a great deal if you’re a buy-and-hold real estate investor.
Start with the biggest fee policies when planning a bundle of policies. If you’re a vacation rental host, add the short-term policy to cover the furniture and other features of the property that add to the value of the rental. Be picky about who stays in your place to build a quality cache of returning clients.