I used to have my students pull a AVEMCO renters policy to go along with the planes normal AVEMCO policy.
The only hole I remember is if the plane goes down because of a malfunction, neither policy cover it.
Insurance is a gamble, you need to look at your risk, what you have to loose and go from there.
You also could potentially not need a 100hr if they are paying your friend and you totally separate.
Unless the airplanes normal AVEMCO policy specifically covers dual instruction being given by the instructor and being received by the pilot at hand there are tons of holes in this.
1. The renters insurance insures the renter, not the owner of the aircraft. If an incident occurs they're not going to just automatically pay without the owner proving that it was the fault of renter. The owner's insurance company isn't going to do this for him as they weren't insuring the operation what so ever. Lets say that the crank fails and the student totals the airplane trying to put it down safely. Owner is going to be **** out of luck because it wasn't the renter's fault and the owner has no insurance.
Perhaps a tire blows out on landing, the renter loses control, goes off the runway, and bends the airplane all to hell. Was this really the fault of the renter? Or was this the fault of the tire not being properly maintained? Most likely the renters insurance company will say that it was not the renters fault therefore they're not paying. You could try to sue the renter, but the renter has insurance and they will defend them. You're in a bad spot as the owner...
2. If the renter causes a liability damage, lets say that they taxi it into a jet, or they crash it into a car and kill themselves and a bunch of people. This will be a VERY bad day for the owner as the owner will be sued as well and the owner will have absolutely no liability protection.
3. Many other reasons this is a bad idea. You have to picture it as the owner not having any insurance, because, the owner has no insurance if the operation isn't covered. Renter's insurance is not the owner's insurance. The owner does not get liability protection from the renter's policy and the owner does not get hull protection from the renter's policy. The renter gets coverage incase the owner can make a claim against the renter for damage at fault of the renter..but if it's not super obvious..it's going to be a battle to get paid.