Not everyone can swing a second property, but for those who can, congratulations.
Whether your second home is a cozy cabin by the lake for weekend getaways or a hip studio in your favorite city, owning another property is what many of us dream of. You can use it as a vacation spot or make some extra cash by renting it out.
But take note: insurance for a vacation home or a rental property is not the same. They have different uses and need different types of coverage. If you own either of them, it’s wise to do some research to get the proper protection for your investment.
Now, let’s dig into what these insurances have in common and what sets them apart.
What Is Second Home Insurance?
Second home insurance covers any owned property that isn’t your primary residence — that’s why it’s sometimes referred to as vacation home insurance. And like regular home insurance — the policy that protects your primary home — second home insurance protects your cabins, cottages, or pied-a-terre from unforeseen events like theft, vandalism, wind damage, fire, natural disasters, and liability claims.
When buying insurance for your second home, here are some things to keep in mind:
- While second home insurance covers your stuff just like your regular homeowners’ insurance, it’s still a vacation home, so there might be extra coverage you’ll want to get — like protection from floods or damage to jet skis, campers, mountain bikes, ski equipment, or other recreational vehicles you store there.
- It’s important to have liability coverage in case a houseguest gets hurt on your property. Keep in mind that because of where your second home is located and how often it’s occupied, the insurance may cost more than insurance for your primary residence.
- Insurers will require you to meet certain safety conditions before they give you coverage, like installing smoke detectors, keeping fire extinguishers handy, and establishing a security system.
- Have your insurance company review your policy regularly, at least every year or so, to ensure it still meets your needs, especially if anything changes with your property, like additions or outbuildings, names on the deed, or how it’s being used.
What Is Rental Property Insurance?
Rental property insurance, aka landlord insurance, is what property owners need to protect themselves when they lease out their investment property. This type of insurance policy covers things like property damage, liability claims, and lost rental income.
Here are some key points you should be aware of if you’re considering turning your property into a rental.
- Like standard homeowner’s insurance, rental property insurance covers the physical structure of the rental property, as well as appliances and fixtures.
- It offers coverage against fire, water damage, windstorms, and vandalism — all the categories of typical home insurance. How much coverage depends on the protection you think you’ll need.
- When buying rental property insurance, you’ll have different coverage options to choose from, like basic coverage, comprehensive coverage, or additional endorsements for specific risks. Your premium will depend on where the property is located, the type of coverage you choose, and the deductible.
- We can’t stress enough how important it is to have liability coverage — especially for a rental! This will protect you — the landlord — against claims made by tenants or their guests for injury or property damage. And if your rental property becomes uninhabitable due to a covered event, your insurance may also cover lost rental income.
- Make sure you review your rental property insurance policy carefully to understand what’s covered and excluded, as well as any limitations or requirements for filing a claim.
Key Differences Between Second Home Insurance And Rental Property Insurance
The main thing that sets second home and rental property insurance apart is what the property is used for. Second home insurance protects a property you use mainly for yourself, like a vacation home. On the other hand, rental property insurance protects a property you rent out to others.
Since there are different risks involved when you have tenants, rental property insurance usually has more coverage than second home insurance. For example, besides covering income you might lose if your place is totaled and renting it is impossible, rental property insurance also helps with legal fees if you find yourself having to evict a tenant.
Another significant difference is that rental property insurance is typically more expensive than second home insurance due to the increased risks associated with renting out a property. Costs will also be higher because the insurer assumes risks for multiple unknown people.
What if the rental property is a condo?
Good question! If your second property is a condo that you’re renting out, it’s important to ask that your policy is updated to include improvements that may not be included in the condo corporation’s insurance as well as HOA fees if that’s being covered by the rent.
If damage incurred in your unit affects the entire building (like an overflowing tub that floods the floor below), and the condo corporation bills the owner for what its insurer won’t pay (the deductible), your renter’s insurance policy often will provide coverage.
Regardless of the type of property being rented out, it is a good idea to require tenants to purchase and show proof of renters’ insurance. Renters’ insurance policies protect tenants’ belongings and provide extra liability coverage if they are responsible for any damage.
So, for example, if your property burns down due to a wiring problem, rental insurance will kick in. However, if the tenant forgets to turn off the stove and that causes a fire, their tenants’ policy will respond.
So Which Insurance Policy Do You Need?
If you purchase a second home that you will use primarily for personal use, then second home insurance is likely the best option. This type of insurance will cover damages and liability related to the property and any personal belongings you keep there.
If you plan to rent out your second home space, then rental property insurance is the better choice. This type of insurance will cover the unique risks of renting out a property, including loss of rental income and legal fees.
It is important to note that if you rent your property through a platform like Airbnb or HomeAway, you may need to purchase additional coverage or a separate policy specifically for short-term rentals.
Choose The Right Type Of Coverage
By understanding the similarities and differences between second home insurance and rental property insurance, you can choose the right type of coverage to protect your investment.
But, one last thing: consider your neighbors! If you buy a second property and then decide to rent it out, your neighbors would want that property to be covered in case of a disaster that could harm their property values.
Let’s talk! We’re here when you want to speak with someone who specializes in property insurance to ensure that you have adequate coverage for your situation. We’ll help you determine the correct type and the appropriate coverage limits based on your property, location, and usage.