Managing a rental property comes with a fair share of risks, and insurance is your first line of defense. But even the most seasoned property managers can fall into traps that leave them vulnerable. Overlooking essential coverage or misinterpreting policy terms can have serious financial consequences. This post highlights insurance mistakes to avoid and common insurance pitfalls that property managers and landlords should know about to protect their investments.
Whether you’re insuring long-term residential units or short-term vacation rentals, understanding these mistakes will help you secure the right coverage and avoid costly surprises.
Not Understanding the Differences Between Policies
One of the most common insurance pitfalls is assuming that a standard homeowner’s policy is sufficient to cover rental properties. Unfortunately, this is rarely the case. If you’re renting out your property—whether for long-term tenants or short-term stays—you’ll need a specialized policy to address the unique risks of rentals.
Key Types of Insurance to Know:
- Homeowner’s Insurance: Primarily covers owner-occupied residences, not rentals.
- Landlord Insurance: Designed for long-term rentals, providing coverage for property damage, liability, and lost rental income.
- Short-Term Rental Insurance: Covers the specific risks associated with vacation rentals, including guest-related incidents.
Pro Tip: If you manage both short- and long-term rentals, consider a hybrid insurance policy or multiple policies tailored to your property’s needs.
Relying on Guests’ Personal Insurance
Some property managers assume that guests’ personal insurance—like travel insurance or renters’ insurance—will cover any incidents that occur on the property. While this may offer some protection, relying solely on guest policies is a significant insurance mistake to avoid.
- Travel insurance typically covers the guest’s belongings and health emergencies, but not property damage.
- Renters’ insurance may cover liability, but only in long-term rental situations, not short-term stays.
- Even if a traveler or renters insurance policy does cover a limited amount of damage, not every traveler or renter obtains insurance
Instead, make sure your own policy includes guest-related liability to avoid gaps in coverage.
Underinsuring Your Property
Underestimating the value of your property or only purchasing minimal coverage can leave you vulnerable to unexpected repair or replacement costs. This insurance pitfall is particularly common in high-demand or tourist-heavy markets where property values fluctuate.
How to Avoid Underinsurance:
- Regularly reassess your property’s value and adjust your policy accordingly.
- Include replacement cost coverage, which covers the cost of rebuilding or repairing the property, rather than just its depreciated value.
- Account for seasonal fluctuations—if you manage vacation rentals, your exposure to risk may increase during peak seasons.
- Account for how frequently your renters change – each new guest/renter introduces risk as they become familiar with their new surroundings
Pro Tip: Some insurers offer inflation protection, automatically adjusting your coverage to match market trends.
Ignoring Liability Coverage
Liability coverage is a critical part of rental insurance, but it’s often overlooked or underfunded. Whether you manage long-term tenants or short-term rental guests, accidents can happen—slip-and-fall injuries, property damage caused by guests, or even legal disputes can arise. Without sufficient liability insurance, you could face hefty legal fees and settlements.
Make sure your policy includes:
- General liability coverage: Protects you from legal claims related to injuries on your property.
- Loss of income protection: Covers missed rent payments if the property becomes uninhabitable due to damage.
Having a robust liability policy ensures that you won’t be out of pocket if a guest or renter takes legal action.
Overlooking Exclusions in Your Policy
Every insurance policy comes with exclusions—situations or events that are not covered. Failing to read and understand these exclusions can result in costly mistakes. For instance, some insurance pitfalls include assuming your policy covers natural disasters or vandalism when, in fact, those events are excluded or require additional riders.
Common Exclusions to Watch Out For:
- Flooding and earthquakes: Often excluded and require separate policies.
- Wear and tear: Insurance typically covers sudden accidents, not gradual damage.
- High-risk amenities: Pools, hot tubs, and certain sports equipment may need additional coverage.
Always ask your insurer for a detailed breakdown of policy exclusions to avoid surprises when filing a claim.
Delaying Policy Renewals or Updates
Letting your insurance policy lapse is a mistake that can have severe consequences. Even a short gap in coverage could leave you unprotected from liability or property damage. Additionally, failing to update your policy when making renovations or buying new furnishings could leave you underinsured.
How to Avoid This Mistake:
- Set reminders for renewal deadlines and review your policies annually.
- Inform your insurer about any upgrades, like new appliances or security systems, to adjust your coverage accordingly.
- If you’re switching insurers, ensure there’s no overlap to avoid a lapse in coverage.
Not Taking Advantage of Discounts and Bundling Options
Many insurers offer discounts or bundling options that could save you money, but property managers often overlook these opportunities. Some insurance pitfalls include paying for multiple policies separately when bundling them could provide better coverage at a lower cost.
Ways to Save:
- Multi-policy discounts: Bundle landlord insurance with homeowners or auto insurance.
- Security system discounts: Properties with monitored alarms, cameras, or smoke detectors often qualify for reduced premiums.
- Claims-free discounts: Avoiding claims for a certain period can earn you lower premiums over time.
Take the time to discuss available discounts with your insurer to maximize your savings.
Failing to Document Claims Properly
When something goes wrong, you need to be prepared to file a claim quickly and accurately. Many insurance mistakes happen due to poor documentation or delays in reporting incidents. Insurers require specific evidence to process claims, and missing paperwork can result in denied coverage.
Best Practices for Filing Claims:
- Take photos and videos of any damage immediately after an incident.
- Keep receipts and invoices for repairs and maintenance.
- Report incidents as soon as possible, even if you’re unsure whether you’ll file a claim.
Proper documentation ensures a smoother claims process and improves your chances of receiving timely compensation.
Skipping Guest Verification Procedures
For property managers offering short-term rentals, failing to screen guests can lead to denied insurance claims. Some insurers may not cover damages caused by guests if you didn’t follow proper vetting procedures, making this a key insurance pitfall to avoid.
Use guest verification tools, like CoverCat, and platforms that:
- Verify identity through government-issued IDs.
- Flag suspicious behavior based on previous rental history – where privacy regulation allows.
- Require security deposits to cover potential damages.
Covering your bases ensures your insurance remains valid in case of guest-related incidents.
Overlooking Specialized Insurance Needs
Certain rental properties may require additional coverage that goes beyond basic policies. For example, vacation homes in coastal regions may need hurricane coverage, while properties used for events or parties might require event liability insurance.
How to Avoid This Pitfall:
- Assess your property’s unique risks, including geographic and usage factors.
- Speak with your insurance agent about riders or add-ons that may be necessary.
- Review your policy regularly to ensure it matches your property’s current needs.
Protect Your Investment with Smart Insurance Choices
Avoiding insurance pitfalls is essential for safeguarding your property, income, and peace of mind. From underinsuring your property to neglecting liability coverage, the mistakes outlined here can lead to costly consequences if not addressed. Whether you’re managing short-term vacation rentals or long-term leases, understanding these insurance mistakes to avoid will help you secure the right coverage for your business.
At CoverCat, we specialize in insurance solutions tailored for short-term rental property managers. Our policies are designed to protect you from common pitfalls and give you the coverage you need to run your business with confidence. Contact us to learn more about our short-term rental insurance options and how we can help you avoid costly mistakes.
