Understanding Short-Term Rental Insurance
As short-term rentals continue to grow in popularity, property owners often focus on the benefits of additional income, flexibility, and property utilization. However, hosting short-term guests also introduces unique risks and potential liabilities that typical homeowners' insurance policies don’t cover. That’s where short-term rental insurance comes in.
Why Short-Term Rental Insurance is Important
Short-term rental insurance is a type of specialized insurance that provides coverage for the unique risks associated with renting out your property on a short-term basis. Whether renting a vacation property or an investment property, property owners need protection against unexpected situations, such as:
Guest-Related Injuries: Accidents can happen, and if a guest gets injured on your property, you could be held liable for medical expenses or even face a lawsuit.
Property Damage by Guests: Traditional homeowners' insurance typically doesn’t cover damages caused by paying guests. If a guest accidentally damages your property or furnishings, a short-term rental policy can help cover the repair or replacement costs.
Lost Income Due to Property Damage: If your property is damaged by a covered event, such as fire or storm, it might be uninhabitable for a period. Short-term rental insurance can help cover the income you would have made during the downtime.
Third-Party Liability: Short-term guests and any visitors they may bring increase the risk of potential injuries, which could lead to costly lawsuits. Short-term rental insurance can protect you from liability claims if a guest or their visitor is injured on your property.
Why a Regular Homeowners Insurance Policy Typically Isn’t Sufficient
Homeowners' insurance is designed to protect owner-occupied properties. These policies are intended for personal use, not for the business activities involved in short-term rentals. Here’s why a homeowners' policy often falls short:
Exclusion of Business Activities: Renting out property, even part-time, is often considered a business activity by insurance companies. Many homeowners' policies exclude or limit coverage for damage or liability that occurs when the home is being used for business purposes.
Gaps in Liability Protection: Liability coverage in standard homeowners' insurance doesn’t generally extend to cover injuries to paying guests. Without adequate coverage, you could be liable for significant medical or legal expenses if an incident occurs.
Risk of Policy Cancellation: Some insurance providers may even cancel a homeowners' policy if they discover that the property is being used as a short-term rental without proper disclosure. This can leave property owners unexpectedly uninsured.
What to Look for in Short-Term Rental Insurance Coverage
When exploring short-term rental insurance options, look for policies that provide a combination of property, liability, and income protection. Here are key areas to consider:
Comprehensive Property Coverage: Look for coverage that includes protection against accidental damage by guests and damage from perils like fire, storms, and natural disasters.
Guest Injury Liability: This is one of the most critical parts of short-term rental insurance. Ensure the policy covers liability claims related to guest injuries, as well as legal defense costs, which can be significant.
Lost Income Coverage: If your property becomes uninhabitable due to covered damage, this coverage will compensate for the rental income you’d have received. This is particularly valuable for owners who rely on steady rental income.
Guest Property Protection: Some policies also offer coverage for the property of your guests in case it gets damaged or stolen while on your premises. This can add an extra layer of protection and peace of mind for both you and your guests.
Coverage for Vandalism and Theft: Many standard policies exclude guest-related theft or vandalism.
Choosing the Right Policy
Each insurance provider has its own specific coverage terms, so it’s important to shop around and compare options. Be sure to check if the policy covers short-term rentals, as some policies may only apply to long-term rentals. Additionally, clarify any limitations or exclusions related to high-risk activities (like pools or open fires) to avoid surprises.
Pro-Tip: If you’re hosting on Airbnb, you can utilize ‘AirCover for Hosts.’ AirCover benefits are always included, free, and don’t require hosts to opt in. These benefits include guest identity verification, reservation screening, $3M Host Damage Protection, $1M Host Liability Insurance, and a 24-hour safety line.
Reimburse Hosts up to $3 million in the event your place or belongings are damaged by a guest.
You’re reimbursed for certain damage caused by guests if the guest does not pay for the damage.
It also reimburses for extra cleaning services in certain cases
What's Covered
Damage to your home, furnishings, valuables, belongings, parked cars, boats, or other vehicles caused by guests
Extra cleaning costs that are required to remove stains left by guests, pet accidents, smoke odor removal, or when required due to additional unapproved guests
Income lost if you need to cancel confirmed Airbnb bookings due to damage caused by a guest (or their invitees)
What Isn’t Covered
Normal wear and tear
Loss of currency
Loss due to acts of nature (i.e., earthquakes and hurricanes)
Cleaning associated with normal check-out
Other exclusions apply
Host liability insurance provides Hosts with $1 million in coverage in the rare event you are found legally responsible for a guest getting hurt or their belongings being damaged or stolen.
Co-Hosts and cleaners are also included.
What's Covered
Bodily injury to a guest (or others)
Damage to or theft of property belonging to a guest (or others)
Damage caused by a guest (or others) to common areas, like building lobbies and nearby properties
What Isn’t Covered
Damage or injury resulting from something done intentionally
Other exclusions apply
Invest In Insurance
Short-term rental insurance isn’t just a "nice-to-have" for property owners—it’s an essential safety net that protects against the unique risks of renting out your space. While traditional homeowners' insurance doesn’t cover the liability and property risks of short-term rentals, a dedicated short-term rental policy provides coverage for guest-related incidents, lost income, and property damage.
By investing in the right coverage, you can rent your property with confidence, knowing you’re well protected from potential risks.
TakeawayS
We recommend reviewing your coverages with your current insurance company to ensure that you are properly protected as a short-term rental owner.
We learned the hard way; unfortunately, many large insurance companies do not provide short-term rental policies, and if they do, they are typically limited. We have been very happy with Proper Insurance - based out of Bozeman and recognized nationally. They have some wonderful information on their website and you can get a free quote within a few minutes.
Disclaimer: The information provided in this blog is for general informational purposes only and does not constitute tax or legal advice. Every short-term rental situation is unique, and tax laws can vary based on your location and specific circumstances. We strongly recommend consulting a qualified tax professional, insurance professional, or legal advisor who can provide guidance tailored to your individual needs. This blog should not be used as a substitute for professional advice, and we are not responsible for any actions taken based on this information.
