Like any investment, it's imperative to protect property you own.
“It’s very important for a property owner to meet annually with their insurance provider,” said Peter Howard, a sales executive with PayneWest Insurance. “Having a relationship and staying in communication with the insurance professional is so important.”
In a catastrophic event like a fire, it can be the difference between a provider covering a recent remodel because it was discussed with an insurance representative and added to a plan, or the homeowner being liable for improvements because no one thought to revise the contract.
“It’s very important for the homeowner to properly represent their risk,” Howard said.
And as the world has been changing, risks have been changing. During the pandemic many people across the country started home remodels, some as simple as painting a wall, and some as elaborate as adding a wing. But if those additions weren't discussed and added to the insurance policy, the value of the policy may not cover the entire cost to rebuild in a catastrophic event.
The costs of construction and inflation have gone up so much that insurance rates have been climbing, and insurance product offerings have also been adapting.
“Over the past few years short-term rental usage has become much more popular,” Howard said. “And the traditional homeowners insurance policy doesn’t cover that.”
Insurance companies have redesigned their coverage offerings to keep up with home sharing and short-term rentals, so homeowners and property owners can select tailored plans to cover their risk and liability.
Conversely, if something happens to a home while a tenant is staying there and it isn’t listed in the insurance policy, the contract may not cover damages.
“The insurance industry is one of the most competitive industries in the world,” Howard said.
“In order for an insurance policy to respond at the time of a loss, it is very important for a homeowner to properly represent themselves and the risk involved with their property. An insurance policy is a contract with limitations and exclusions.”
For example, in a long term rental, unless it comes fully furnished, the homeowner’s insurance should only cover the shell of the house, and not the renters' belongings. A renter would be responsible for the cost of insuring their belongings. With a short-term rental, typically there are furnishings in the home that should be covered, but also the risk factors are different, and need to be addressed differently. But use of a home will vary, and so should insurance coverage.
“You want to meet with your insurance agent regularly to ensure your replacement costs in the insurance policy are current,” President of the Coeur d’Alene Regional Realtors Jared McFarland said. “You can end up underinsured if replacement costs have increased beyond your policy coverage. If you do have a rental property, whether short-term or long-term, you do want to discuss with your insurance agent that you are using it as a rental.”
McFarland has rental properties, both short and long term, and meets with his insurance provider each year to minimize his risks, and he encourages every homeowner or property owner to do the same, whether they have a loan or own their property outright.
It’s a common misconception that an insurance policy will cover the value of a home. Insurance covers the cost to rebuild a home, or bring it back up to original standards in similar materials.
And insurance policies can offer flexibility in rental types, to allow a property owner to make their own decisions with how they rent or utilize their buildings.
“We’ve seen the short-term market has slowed down because there are more short-term rentals out there,” McFarland said. “The market's sort of taking care of itself.”
McFarland can pivot in a market shift to target demand. For example, the market is gradually moving away from short-term rentals as demand for long-term rentals increases, and he can change a rental from long-term to short-term quickly, or vice-versa.
“The Coeur d’Alene Regional Realtors supports people being able to do what they want with their property,” McFarland said.
Whatever the goals of a property owner, there’s an insurance policy to minimize the risks involved in property management, but the responsibility falls on property owners to decide what’s right for them and their budget.