Vacation and Short-Term Rental Properties Policy

Insurance providers or carriers are renowned for their ability to underwrite complex risks, and their vacation rental programs are no exception. However, to secure and maintain coverage through the Proper Vacation Rental Program offered by insurance providers, strict underwriting guidelines must be followed. These requirements are designed to ensure the property is safe, adequately valued, and properly maintained. Failing to meet these guidelines can lead to policy delays, a file being returned to sales, and commission holds for brokers. Below is a comprehensive breakdown of the essential underwriting requirements.

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1. Building Limits: Adequate Valuation is Critical

The first step in securing coverage is ensuring the building is properly valued. Insurance providers have specific minimum coverage requirements for the vacation rental program:

Minimum $100 per square foot: This applies to all habitational buildings. If the cost per square foot is lower than $100, underwriting approval is required. This limit does not apply to condominiums or detached structures like garages.

Content Coverage: Content coverage must be at least $10,000 per bedroom. For instance, a three-bedroom home would need at least $30,000 in coverage. While garages and other outbuildings do not have a minimum, the main residence must meet this threshold.

2. Business Income Coverage

A minimum of $10,000 Business Income (BI) coverage is required. Any areas of the property not used for rental purposes, such as detached garages, do not need to meet this BI limit.

3. Building Updates: Ensuring Modern Standards

Properties built before 1960 require additional documentation to confirm they meet modern safety standards. If this documentation is not provided, it will result in delays and potentially trigger a file to be returned to sales. Below are the specific areas of concern:

Wiring

For homes built before 1960:

You must provide written confirmation from the insured that the property has been entirely rewired, including the approximate year of the update. Supporting photographs are also required.

Alternatively, a licensed electrician can provide an electrical service report. This report should confirm there is no active knob-and-tube wiring, aluminum wiring, or fuse boxes present.

Plumbing

For homes built before 1960:

Written confirmation that the plumbing has been updated, along with photographs, will suffice.
Alternatively, a licensed plumber can provide a plumbing service check-up report.

Roofing

If the roof is more than 25 years old, a roofing service report from a licensed professional is required to ensure the structure's integrity.

Heating and HVAC

If the HVAC system is older than 25 years, a service report completed within the last five years is required.

4. Online Listing Requirement

Every vacation rental must have an active online listing. This listing must be on a recognized vacation rental platform, such as Homeaway, VRBO, Airbnb, or Flipkey. If the property is new and does not have an active listing at the time of application, you may temporarily provide a listing link from sites like Trulia or Realtor.com.

The client will have 30 days from the policy's effective date to activate an online listing for bookings.

5. Handrails and Guardrails: Compliance with Modern Codes

All properties must adhere to the latest International Building Codes (IBC/IRC 2015). This is particularly important for:

Handrails: Required for any stairs with four or more risers.
Guardrails: Required for any elevated surface greater than 24 inches.

It is essential to verify the property’s compliance, regardless of when it was built. Properties built before 2015 are not exempt from these requirements. Below are links to the most current codes for reference:

Residential Stair Code
Guardrail Height Requirements

6. Disqualifying Amenities

Certain amenities are considered too high-risk for coverage and will disqualify the property unless they are removed:

Diving boards and pool/dock slides (unless commercial-grade).
Rope swings, trampolines, and zip lines.
Dart boards and fully furnished bars.
Other unique amenities may also be disqualified upon review. Each property’s online listing is scrutinized by the underwriters to ensure all high-risk amenities are disclosed.

Note: No Room-Sharing Scenarios

At this time, room-sharing scenarios (i.e., private room rentals in a single-family home or couch-surfing arrangements) are not eligible for coverage through this program.

7. Additional Underwriting Considerations

The binding application for insurance providers' vacation rental programs includes several underwriting questions. While none of these questions will automatically disqualify a client from coverage, they may trigger additional requirements. Common considerations include:

Pools: Pools must meet safety requirements such as having no slides or diving boards, proper depth markers, and appropriate signage. In some cases, life jackets and waivers of liability in the rental agreement are also required.
Hot Tubs: Similar to pools, hot tubs must comply with safety standards.
Small Watercraft: Any small watercraft available for guests must also adhere to safety regulations, including the availability of life jackets.

Conclusion

Meeting the underwriting requirements for the Proper Vacation Rental Program offered by insurance providers is essential for ensuring timely policy delivery, avoiding commission holds, and securing comprehensive coverage for your property. Whether it’s ensuring your building is properly valued, providing the necessary service reports for older systems, or ensuring your property complies with current building codes, these guidelines are designed to mitigate risks and maintain safety standards. By understanding and adhering to these requirements, brokers and property owners can streamline the application process, avoid common pitfalls, and secure the protection needed for vacation rentals. Proper preparation and compliance will prevent unnecessary delays and ensure smooth sailing in obtaining coverage through these programs.

Frequently Asked Questions (FAQ)

1. What happens if my property doesn’t meet the minimum $100 per square foot requirement?

If your property falls below this threshold, you will need to obtain underwriting approval. Depending on the unique circumstances of your property, you may be required to provide additional documentation or evidence to justify the lower valuation.

2. Can I list my vacation rental on multiple platforms?

Yes, you are encouraged to list your property on multiple platforms such as Airbnb, VRBO, and Homeaway. However, you must provide a link to at least one active online listing within 30 days of the policy's effective date.

3. What happens if my property has disqualifying amenities?

If your property has amenities such as trampolines, zip lines, or diving boards, you will either need to remove them from the property or request underwriting approval. Without this, your application will be denied.

4. Why are service reports required for older systems and structures?

Properties with older wiring, plumbing, roofing, or HVAC systems pose increased risks. Service reports from licensed professionals provide confirmation that these systems are safe and up to date, reducing the risk of damage or liability.

5. Can I insure a property used for room-sharing, like private room rentals?

No, insurance providers do not currently offer coverage for room-sharing scenarios. Only whole-property rentals are eligible for the Proper Vacation Rental Program.

By adhering to these requirements, you can avoid delays in policy issuance and ensure your vacation rental is adequately protected under the Proper Vacation Rental Program.