Short Term Rental Insurance: Protecting Your Investment and Guests

What is Short Term Rental Insurance?

Short-term rental insurance, also known as vacation rental insurance, is a type of insurance coverage designed to protect property owners, managers, and hosts who rent out properties on a short term basis to guests, often through platforms like Airbnb, Vrbo, or Booking.com but also direct booking.

This insurance provides coverage for various risks and liabilities that can arise from renting out a property, such as damage to the property, injuries to guests, theft, and other potential incidents.

Short Term Rental Insurance Options for Airbnb Property Managers

1. Homeowners' Insurance Endorsement
2. Vacation Rental Insurance
3. Commercial Insurance
4. Host Protection Insurance
5. Property Insurance
6. Liability Insurance
7. Umbrella Insurance

Why You Need Short Term Rental Insurance

Short term rental insurance is a means of managing risks associated with renting out a vacation rental property in the short term. By acting as a financial safety net, it protects you as a property manager and/or owner from various risks that may befall your property and business in the future.

By ensuring your financial security in the face of various financial risks in the future, you can focus on running your Airbnb vacation rental business optimally, maximizing bookings and revenue.

There are many reasons or risks to protect against for property managers to obtain short term rental insurance:

1. Liability Coverage

Property managers and homeowners can be held liable for accidents or injuries that occur on the rental property. Short term rental insurance provides liability coverage in case a guest or visitor gets injured and decides to hold the property manager and/or owner responsible. This coverage can help cover legal expenses and potential settlements.

2. Property Damage

If guests cause damage to the property during their stay and refuse to cover the costs of the damage, short term rental insurance can provide coverage, helping vacation rental hosts avoid financial losses.

3. Protection Against Lawsuits

In the event of a lawsuit from a guest or neighbor related to the vacation rental property, property managers and homeowners can face legal expenses and potential damages. Short term rental insurance can offer protection in these situations by covering legal costs and potential settlements.

4. Loss of Income

If a property becomes temporarily uninhabitable due to reasons such as extensive property damage caused by guests or natural disasters like hurricanes and earthquakes, short term rental insurance with loss of income coverage can reimburse the income they would have otherwise earned.

Loss of income coverage can also apply to circumstances that prevent guests from turning up for their stay where hosts lose out on their income such as a volcano eruption that prevents air travel or a pandemic-led travel restrictions.

5. Guest-Related Incidents

Sometimes, guests may cause problems beyond property damage, such as noise complaints, other disturbances, and illegal activities. Vacation rental insurance can offer coverage for situations where vacation rental hosts need to address and mitigate such incidents.

6. Theft

In the unfortunate event of theft by guests, short term rental insurance can cover the value or cost of replacing lost items. This can also be written to include belongings to be found in areas of the property that are restricted to guests.

7. Professional Liability

Property managers may also face claims related to their professional services, such as mismanagement of bookings, misleading advertisements, or failure to uphold safety standards. Such claims may be filed by homeowners or guests. Some short-term rental insurance policies include professional liability coverage to address these situations.

What are the Short Term Rental Insurance Options Available to Property Managers?

Vacation rental hosts have several short term rental insurance options available to protect their properties and business. It's essential to choose the right coverage based on your property's characteristics and location and the specific needs of your property and vacation rental business.

Here are some common short-term rental insurance options for vacation rental hosts:

1. Homeowner's Insurance Endorsement

Some homeowners' insurance policies offer endorsements or add-ons that extend coverage to short term rentals. However, homeowner's insurance policies are generally considered inadequate coverage for vacation rentals as they cover limited scenarios.

2. Vacation Rental Insurance

Specialized vacation rental insurance is designed specifically for short-term rental properties. This type of insurance provides comprehensive coverage tailored to the unique risks associated with hosting guests. It typically includes protection for property damage, liability issues, and loss of rental income due to covered events like natural disasters or guest-related damages.

3. Commercial Insurance

If your vacation rental property is more akin to a boutique hotel or bed and breakfast, or you are insuring multiple properties that you manage as one, you may need commercial insurance. Commercial policies are suitable for properties with multiple units or extensive guest services. They offer coverage for property damage, liability, and business interruptions that might impact your rental income.

4. Host Protection Insurance

Many online booking platforms offer host protection insurance as part of their services. Airbnb's AirCover and Vrbo's Host Insurance are examples of such offerings. These coverages can help protect hosts against certain liability claims and property damage caused by guests, but they often come with limitations and exclusions and can be more difficult than regular insurance to receive a payout. Strictly speaking, they are also not insurance policies but host protection programs instituted by the platform and will not cover bookings received outside of the platform such as from your direct booking website.

5. Property Insurance

Same as the property insurance obtained by regular homeowners, property insurance provides protection against risks to property such as fire, lightning, storms, floods, electrical failure, etc. Depending on where the property is located, homeowners will want to include coverage for specific natural disasters such as hurricanes in Florida or wildfires in California.

6. Liability Insurance

Liability insurance is crucial for vacation rental hosts as it covers legal expenses, medical bills, and damages in case a guest or third party is injured on your property. Even if you have homeowners' insurance, adding liability coverage specific to vacation rentals can offer extra protection against potential lawsuits.

7. Umbrella Insurance

Umbrella insurance provides an additional layer of liability coverage above the limits of your existing policies, such as homeowners' or auto insurance. It's particularly useful for hosts who want extra protection against potential legal claims that might exceed the limits of their primary insurance policies.

How to Choose the Right Short Term Rental Insurance for Your Vacation Rental

Selecting the appropriate insurance for your short term vacation rental depends on various factors, including the property's location, size, amenities, and how often you rent it out. It's essential to review policy terms, coverage limits, deductibles, and any exclusions before making a decision. You can also request for tailored coverage that excludes certain coverage and includes others to more comprehensively cater to the unique risks associated with your vacation rental property and short term rental business.

Consulting with an insurance professional who understands the short term rental market can help you navigate the options and find the coverage that best suits your needs.

Conclusion

Protecting your investments and future earnings while ensuring the safety of your guests and belongings is a top priority for vacation rental hosts. Choosing the right insurance coverage can provide you with peace of mind and financial security, allowing you to focus on providing an exceptional experience to your guests.