From Single-Family Rentals to Assisted Living Leases: Rethinking Your Insurance Strategy
From Single-Family Rentals to Assisted Living Leases: Rethinking Your Insurance Strategy
Derek Kartchner – Gila Insurance
Most AZREIA members are accustomed to investing in single-family homes (SFHs), whether as long-, mid-, or short-term rentals—or as fix-and-flips. Some members have experience in multi-family properties, and fewer in the commercial space (this is just my observation). Several years ago was the first time I heard a presentation regarding assisted living facility investments. The idea of using an SFH and renting it out to an assisted living operator, or even taking the next step and running a facility, was intriguing. I wasn’t the only one impressed by the presentation—it was great, and we quickly started receiving phone calls about how to insure these types of properties. BOOM! We had a fusion of a standard SFH rental with a commercial occupancy, and misconceptions were born. Here are just a few things we learned as we helped people sort through insuring their property when they intended to rent their SFH to an assisted living operator.
A traditional landlord policy doesn’t work: The traditional landlord policy is designed to protect rental properties from common perils such as fire, wind, or theft, and typically includes coverage for the structure, loss of rent, and personal liability. However, when leasing your SFH for use as an assisted living facility, serious limitations arise:
Occupancy Risk Misalignment: The DP-3 policy is intended for standard residential rental use, not for properties serving as businesses with high foot traffic and vulnerable occupants.
Business Liability Gaps: An assisted living operation is considered a commercial business. DP-3 policies do not cover claims arising from professional liability, caregiver negligence, or health-related incidents involving residents.
Regulatory Requirements: Many states mandate higher liability limits or different types of coverage when housing at-risk populations, which DP-3 is not designed to meet.
Tenant Operations Not Covered: Injuries or lawsuits resulting from the assisted living operator’s business activities are generally not insurable under a DP-3 policy. This means the argument of, “I am not the operator, I am just renting the property out,” doesn’t hold up. You can’t rent your home to a restaurant and claim you’re just renting the space—the same goes for an insurance business, a dynamite factory, and the same applies to an assisted living facility. The risk of each is different, and therefore the rate will be different.
A commercial package policy is needed: A commercial package policy covers the building, business personal property, general liability, and business income. “Sounds expensive”? Maybe, but expensive is relative. There are carriers that specialize in this space and will work with you. Traditionally, rates can be higher for these types of risks (often 2-3 times higher), BUT that means you should be able to demand more rent. The increased rent is certainly a benefit, but it should also include planning for increased expenses associated with renting the home to a business.
In short, don’t be penny-wise and pound-foolish. A landlord policy is NOT the way to go if renting to an assisted living facility. Get a policy that covers the risk, which in this case will be a commercial package policy to cover your home, the liability, and ensure that if something does happen, you are properly covered. For more information, contact Gila Insurance Group LLC.
Gila Insurance Group LLC
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928-428-6440