Do I Need Short-Term Rental Insurance for My Vacation Property?

A Complete Guide to Short-Term Rental Insurance by Vacation Rental Experts

If you own a second home, you’re likely aware that turning it into a vacation rental can be a lucrative business, but it also comes with its own set of challenges. If you’ve just started looking into the idea of listing your second home for rent on popular booking channels, like Airbnb and VRBO, you may have seen mentions of specialized short-term rental insurance. You may be wondering what exactly this coverage is and why you need it – after all, wouldn’t your current homeowners policy cover any incidents that occur?

The simple answer is no, and we’ll get into the exact details of why that is later on in this guide. We understand that for first time hosts, this entire process can be confusing, but the experts at SkyRun can help you navigate it. With 2 decades of experience in the short-term rental industry, SkyRun has learned the ins and outs of what’s required for vacation rentals. This comprehensive guide breaks down everything you need to know about short-term rental insurance.

What is Short-Term Rental Insurance?

Short-term rental insurance, also referred to as vacation rental insurance, is designed to cover your property while it is rented out to guests on a short-term basis, as well as protect you from liability exposure. For example, if a guest injures themselves on your property and attempts to take legal action against you, a short-term rental policy would help to provide protection in these instances. This coverage is unique to short-term rental insurance because paying customers are involved. To illustrate, let’s briefly cover the other forms of property insurance and how they differ from short-term rental coverage.

Standard Homeowners Insurance Policies

Your standard homeowners policy is meant to cover possible damage to your home and other structures ( i.e. from fire, storm damage, explosions, burst pipes vandalism, etc.),  as well as cover your belongings. It also provides liability coverage, which can cover injuries of your invited guests or damage to their property. It is not, however, meant to provide liability coverage to paying guests or to cover potential damage caused by guests. When you grant full access of your property to a paying customer, the coverage your homeowners insurance provides begins to fall apart. In these cases, if you aren’t properly insured with short-term rental coverage, you could find yourself in a messy situation due to the gaps in your standard homeowners policy.  In general, these are just a few of the main gaps in your homeowners policy:

• Guest-caused damage
• Lost business income
• Guest liability (if a guest is injured on your property)
• Potential theft or burglary

Landlord Insurance

There is also specialized insurance coverage for landlords who rent their properties. Some people wrongly assume that these policies could protect their short-term rental property. However, landlord policies are not meant to provide coverage for a constant stream of new guests. Rather, they are meant to provide coverage for properties with long-term tenants.

Who Needs Short-Term Rental Insurance and Why?

Anyone who plans to rent out any space in their home on a short-term basis, even a single room, should have short-term rental coverage to protect their property and cover potential liabilities. Renting your home to guests generates income, which means your property is essentially functioning as a business. Therefore, you need commercial insurance coverage just like any other business. In many areas, you may be required to acquire this coverage to obtain a short-term rental permit, as many local regulations mandate it. Be sure to check your local regulations to see what they require. Regardless, whether your local regulations require it or not, it is best practice to enroll in short-term rental coverage in order to protect yourself and your home.

What Does Short-Term Rental Insurance Cover?

The coverage of your short-term rental insurance will vary based on the details of your policy and the company you choose to obtain your policy from. It’s important to fully understand the coverage you are purchasing, as some policies will only cover incidents that occur while the home is occupied by guests and not for incidents that occur on unoccupied nights. Common short-term policies usually provide protection for the following as a baseline, but be sure to check with your provider for exact details:

• General commercial liability
• The structure of your home
• All contents within the home
• Loss of income (if your home is damaged and you are unable to rent it until repaired)

Additional Coverage You Can Potentially Add to Your Short-Term Rental Policy

• Amenities liability (i.e. pools, hot tubs, etc.)
• Pet liability
• Infestation (i.e. bed bugs, fleas, etc.)
• Intentional damage, vandalism, or theft caused by guests
• Protection from squatters 
• Off-site amenities liability (i.e. bikes, golf carts, etc.)

What about the Protection Coverage Offered by Booking Platforms?

If you’ve looked into listing your home on popular booking websites, like Airbnb and VRBO, you likely already know that these platforms offer host protection programs. You may be wondering why you need your own short term rental policy if you’re covered by the protection of these channels. The truth is, the coverage offered by booking channels isn’t enough. Both Airbnb Host Protection Insurance and VRBO’s policy offer up to $1 million for liability coverage, but they have significant limitations. 

Many hosts wrongly assume that these programs function like an insurance policy, i.e. they make a claim when damage occurs at their home, and receive a payment to cover it. However, these programs are not an insurance policy and all claims and payments are at the discretion of the platforms, meaning they could (and likely will) deny your claim. In addition, the $1 million of coverage sounds impressive, but what many hosts fail to realize is that this amount is shared among all hosts worldwide. This means all hosts are making claims to get a piece of this coverage and the chances of yours being paid out are extremely low. Therefore, it is best to have your own policy where you are the named insured, rather than relying on the limited coverage of these platforms.

Finding the Right Insurance Provider

Before you choose an insurance policy to protect your short-term rental, it’s important to understand all your coverage options. We suggest you shop around to various providers to find which has the best coverage to meet your property’s unique needs. This will allow you to compare options side by side, helping you find the best price and ensuring you won’t pay for coverage you don’t need. We suggest scheduling time to meet with several providers and ask them the same questions about their coverage and premiums. Make sure you take notes, so you can look back later and compare. Be sure to ask:

• What type of coverage does the policy provide? (just the house, my belongings, damage, liability, etc.)
• Will the policy cover any outdoor amenities at my property?
• What is the deductible amount?
• How much will I pay monthly for the premium?
• Will the policy only provide coverage for occupied nights or does it include unoccupied nights as well?
• Does this policy provide coverage against loss of revenue if my home becomes unrentable at any point?
• What is the claims process like?
• Will I have a dedicated insurance agent I can reach directly if I need to?