Whether you list your property only in the summer or all year round, whether you work on it full-time or while holding down another job, it is important to recognize that you are running a vacation rental business. As a business owner, one of the things you need to consider to protect your business in the long-term is insurance for your vacation rental. Here’s our definitive guide to vacation rental insurance.
Making your property available for short-term rental can be a great way to generate good revenue but it also puts the property at risk of damage or theft by guests as well as being held liable for injuries that your guests sustain while staying at your vacation rental. Vacation rental insurance is a specialized type of insurance that protects short-term rentals from such risks.
A good vacation rental insurance cover will offer protection against three main factors: property damage, liability, and loss of income.
Even great guests can inadvertently cause significant damage to your vacation rental property as well as the furniture and other equipment that you furnish it with. Vacation rental insurance protects you by covering the whole or at least part of the cost of repairing or replacing the damaged space or item.
No matter how well you maintain your property or how keen you are on safety, there is always the possibility of a guest getting hurt while staying at your property. A guest who gets into an accident while at your property puts you at risk for being liable. Vacation rental insurance can eliminate or minimize the risk, even if you are found responsible.
Some vacation rental insurance policies will also protect your income, for example, if your property is severely damaged and won’t be ready for guests to stay for a while.
More expansive policies may also cover you in case your guests cancel en masse due to an event such as a global pandemic or volcanic eruption or steal items in your property as well as if your property suffers from an infestation from bed bugs or termites or is damaged due to extreme weather conditions. Adding these on however will increase the price of your premium and is best decided depending on your property and business.
The cost of insurance for your vacation rental depends on several factors. These include:
If your vacation rental is located in a high tourist destination, the insurance policy will cost more. Sometimes you can even be charged more if your location is known for being a place where guests throw parties at Airbnbs they’ve booked.
The higher your property is valued, the more expensive your policy will be.
The more valuable the items you’ve furnished your property with, the higher the cost of your premium.
The more guests you have stay and the more frequently you rent out your vacation rental, the costlier your insurance policy as both factors increase the risk of property damage, theft and liability to you as a host.
If your property includes upmarket amenities like swimming pools, fireplaces, and hot tubs, which increase the potential risk of guests getting injured while staying at your vacation rental, you could pay a higher premium.
If you opt for a higher deductible (i.e. the amount you will pay out of pocket before the coverage kicks in) you will lower the premium you are required to pay on your policy. You will also however be taking on more risk.
The average income you earn renting your vacation rental in the short term will also determine the cost of your premium, particularly if you want to claim lost income.
The more you expand the coverage of your policy, the higher the premium you will have to pay.
Homeowners insurance policies generally provide great coverage for your home, from damage, theft, natural disasters, etc. But once you start listing it on an OTA and renting it out to guests in the short term, it is more than likely that your policy will not cover it as your home will now be considered a place of business. Some homeowners insurance policies may offer an option to cover damages in case your home is only rented out occasionally. This may seem to suit property owners who list their properties only at certain times but will depend on how the policy defines ‘occasionally’ as well as how it chooses to cover and compensate. If your property is a condo or an apartment, any short-term rental activity is also unlikely to be covered by the group policy for the building.
OTAs like Airbnb, VRBO, and Booking.com do not require that hosts be insured in order to list on the platform. However, both Airbnb and VRBO offer their hosts protection policies that they are automatically enrolled in when they list. (Booking.com does not provide any such protection.)
The Airbnb Host Guarantee offers hosts protection up to $1 million. It covers damage caused to the property and furnishings by guests and their assistance animals. It does not however cover theft or wear and tear.
The Airbnb Host Protection Insurance meanwhile covers you for up to $1 million in case of legal responsibility for accidents or damage to belongings experienced by guests as well as for damage to common areas like lobbies or even neighboring properties due to guests. It does not however cover injuries or damage to belongings of guests that were not accidental nor loss of income.
VRBO’s Liability Insurance provides property managers up to $1 million in liability coverage in the case a guest is accidentally injured while staying at your property or if you are held legally responsible for damage of third-party’s property by a VRBO guest. It does not however cover damage caused to your property by guests. VRBO however does allow hosts to set a security deposit amount (usually 10% of the weekly rental rate) which they can hold and claim in the case of damage.
VRBO also offers optional policies for purchase. These include Cancellation Protection and Damage Protection.
If you list on Airbnb or VRBO, you are automatically enrolled into their free policies when you list. However, even if you feel these alone are adequate for your vacation rental, do take note that you will be dealing with the channel in proving your claims and getting your reimbursement rather than an insurer, which can take longer. OTAs also always have the discretion to close your claim for reasons they may deem fit and leave you holding the cost of damages.
Insurance is one of those tricky things that you don’t realize you need until you do, so no matter how lucky you feel it is always better to make sure you protect your property, your business, and yourself with vacation rental insurance that covers you adequately. It is always
As the owner of a vacation rental business, you may also be required to be insured by the laws of your city, county, or state, particularly if you are operating on a rental arbitrage model. (Check out our detailed overviews of rental arbitrage in Nashville, Houston, Orlando, Austin, and Montreal.
InsuraGuest is a digital insurance provider that provides flexible insurance packages at affordable prices. Its simplified digital claims process ensures hosts can make claims easily and be reimbursed quickly. And because it integrates into the Hostaway property management system, it doesn’t require you to leave your dashboard to file a claim. It further sets itself apart from other insurers by covering incidents not included in traditional packages.
There is a lot to consider when deciding on insurance for your vacation rental, from how expansive you want the coverage to be and what particular areas you most want to be covered. For example, if you are located in South Florida, you would want to insure against weather events like flooding while if your property is located in a high crime area damage and theft from break-ins should be a high priority. These factors are also important to consider when deciding if you want to rely solely on the protections offered by the OTA you are listed on and increase the risk you are taking on.
In addition to insurance, you can further protect your business, your property, and yourself by requiring all your guests to sign a short-term rental agreement.