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Investing in a Home or Vacation Rental: Insurability

Personal Lines, Property & Casualty

Purchasing a home or vacation rental is an important financial decision. First time homebuyers typically focus on budget, amenities, and proximity to work or school. Individuals searching for vacation rentals focus on short-term rental opportunities and proximity to nearby attractions.

Both types of buyers should also be aware of the property’s insurability. Knowing the estimated cost of insurance can help inform buyers on the investment opportunity and additional cost.

Before you buy:

Work with your agent

Before you place an offer on a home or vacation rental, have a conversation with your M3 Elevate account executive. Underwriting the home in advance of putting in an offer will allow you to determine if you can get the proper insurance and the approximate price. This, in turn, may affect your decision on whether to place an offer or the amount you are willing to pay for the property.

M3 Elevate has a team of experts who can work with you to implement hard-to-place coverage and determine the market availability. We understand the risk and coverage placement available and can offer guidance regarding the insurability of your future home or vacation rental.

Elevated risk elements

Here are the most common high-risk elements for homes and vacation rentals:

  • Age of home
  • Extreme weather: wildfires, hurricanes, and tornados
  • Location: distance to fire station and water source
  • Crime
  • Pollutants

Coastal properties are especially difficult to insure and may come with high price tags for insurance. Property owners in coastal areas should consider purchasing additional flood insurance to protect them from loss due to extreme weather. As a result of Hurricane Ian, there are currently over 44,000 flood claims filed and FEMA projects $5.3 billion in claims losses.

Budgeting for higher insurance premiums in elevated risk areas is essential for first time homebuyers on a tight budget, or vacation rental owners who rely on making a profit through rental income.

Renting your home:

As an extra stream of income, many individuals decide to rent their vacation homes to short-term renters. Before you allow renters into your home, remember to place a rental dwelling policy with your M3 Elevate account executive. Our personal lines team will ensure that you have the proper coverage to cover loss to the property and loss of rent. Many vacation homes are at elevated risk of loss or damage due to extreme weather. The rental dwelling policy will protect you from damage caused by renters, or cover loss of rental income should a covered cause of loss render the property uninhabitable.

Hiring a property manager to check on homes that are subject to cold winter conditions between rental periods will help mitigate risk. Property managers can ensure that the property is left in proper condition in between tenants and the temperature is set to an appropriate level when it is unoccupied. Homes left below 55 degrees are at an increased risk of pipes bursting. According to Property & Casualty 360, winter weather in 2021 caused $15 billion to insure losses. Winterizing properties, especially for less visited second homes, is important to avoid expensive repairs. Learn how to prepare for the winter freeze and prevent frozen pipes.

Key Takeaways:

Before placing an offer on a home or vacation rental, connect with your M3 Elevate account executive to determine the insurability of the property. Certain locations across the country are nearly uninsurable. Our team understands the risk, available market, and coverage placement. Purchasing a home or a vacation rental is a large financial investment, and insurance coverage is essential to protect your investment. Our team can assist with hard-to-place coverage and provide a cost estimate to insure your potential home.

Once you purchase a home, you may decide to open the doors to vacationers/renters. In addition to your property insurance, rental dwelling insurance covers personal liability in the event of an injury or loss of life on the premise. It can also cover lost rental income. If you are interested in turning your home into a vacation rental, reach out to the M3 Elevate personal lines team to secure rental dwelling coverage.

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