Short Term Rental Insurance Guide

What Is Short-Term Rental Insurance 

Short-term rental insurance is specialty insurance coverage that protects property owners against specified risks that arise when they rent their home or unit for short-term stays. Short-term rental insurance covers guest-caused damage to property, liability arising from rental activities such as personal bodily injury and damages that spread to adjacent property, loss of rental income, and other perils arising from short term rental activities.

Why Short-Term Rental Insurance is Needed

Traditional homeowners insurance, whether for a primary or secondary home, in many cases will not respond to certain risks related to short-term rental activities and may exclude guest-caused damages, tenant related liability, and short-term leases for stays under a certain length of time.

When Property Owners Need Short-Term Rental Insurance

Whenever a property owner rents their home, condo, or apartment for short term stays, they should consider buying short-term rental protection.   Although purchase is not necessarily mandatory, having short-term rental protection can address risks particular to short term rental activities.

Some professional property managers may provide contractual guarantees that obligate the manager to respond to certain guest-caused damages that arise during a contracted stay.  Often, the cost of these programs can be an affordable alternative to short term rental insurance.

Before making a determination, the unit owner should review the manager-offered program and determine whether or not the manager is obligated for

  • Guest caused damages to your personal owned contents in the unit
  • Damage to the dwelling structure such as walls, flooring, plumbing and HVAC
  • Legal defense for bodily injury and other liabilities related to renting your home
  • Other obligations such as response to Bed Bug infestation and responsibility for making the necessary repairs and replacement to restore the unit to its pre-guest stay condition.

Additionally, the unit owner should consider the cost, whether or not the protection has sufficient limits relative to the risk, and other factors. Likewise, the unit owner should review their homeowners policy because some policies may exclude rental activities or even void coverage altogether if the unit is rented on a short-term basis.

An insurance licensed agent can help with analyzing the provisions and limitations of your current homeowners insurance policy, compare it with other options, and support careful analysis so that you can make a prudent determination that’s right for you and your needs.

What is Covered By Short-Term Rental Insurance

Short-term rental insurance may be separate, specialized coverage supplementing a homeowners insurance policy, or it may be a comprehensive commercial or homeowners insurance policy which includes added endorsements that expand coverage to address the following risks related to short-term rental activities:

  • Property Damage: Short term rental insurance includes coverage for guest-caused damage to the homeowner’s owned personal contents located at the rented premises including furniture, appliances, carpeting, and upholstery.  Additionally, coverage for rented real property is included.
  • Liability Coverage: Short term rental insurance includes coverage for liabilities arising out of rental activities including host liability for bodily injury and damage to adjacent or neighboring property.  Liability coverage should include legal defense for hosts who become liable for harm caused by or arising from rental activities.
  • Medical Expenses: Short term rental insurance includes coverage for reasonable charges for medical, surgical, x-ray, dental, ambulance, hospital, professional nursing, prosthetic devices and funeral services.
  • Loss of Rental Income: Should an incident cause the habitability of or access to the short term rental to be disrupted at the time of a contracted stay, short-term rental insurance can provide reimbursement for lost rental income.  Typically, a short waiting period applies before loss of rental income can be claimed.
  • Additional Living Expenses: If the covered incident forces a guest to vacate the property  during the period of a contracted stay, short term rental insurance may provide reimbursement for additional living expenses incurred.
  • OTA and Host Platform Protection Programs: Some online travel agencies (OTAs) and vacation rental host platforms offer host protection programs, such as Airbnb's Host Protection, which provides for protection against rental related liabilities and property damages.

Buyers should keep in mind that the additional coverage may require additional premium payments.

What’s Not Covered by Short-Term Rental Insurance

Short-term rental insurance has conditions and limitations and typically doesn’t cover the following:

  • Property not part of the renal unit. Short term vacation rental insurance is focused on real and personal property at or in the short term rental premises.
  • Mechanical defect and break down: Equipment breakdown or faulty manufacturing are excluded in most homeowners and short term rental insurance policies. Short term rental insurance is focused on unforeseeable, sudden damage caused by a specific incident during a specific occupancy.
  • Normal Wear and Tear. The use of property including rental activity results in normal wear and tear and the need for maintenance. Short term rental insurance does not respond to wear and tear, but instead is focused on unforeseeable, sudden events caused by a specific incident during a specific occupancy.
  • Malicious and Intentional Damage: Short term rental insurance may exclude intentional, destructive acts of guests such as those related to criminal activity. Additionally, damage caused intentionally by the property owner, its employees and/or the property manager are excluded.
  • War, Terrorism and Nuclear Incidents: War, war-like acts, terrorism, nuclear attack, nuclear accidents and similar events are normally excluded from short term rental insurance policies.
  • Business Activities: Business activities other than the business of short term rentals are typically excluded from short term rental insurance policies.  Typically, a commercial business insurance policy is necessary to insure other business activities.
  • Flood: Flood insurance is a specialized policy that responds to overflow of inland or tidal water, rapid surface water runoff, lava flow, mud-flow, and land slides.  Visit https://www.floodsmart.gov/flood-insurance for more information.

Important Considerations When Choosing Short Term Rental Protection that is Right for You

Local Ordinance.  Across the United States, local governments have implemented or are considering insurance requirements for short term vacation rental operators and homeowners.  The requirements are typically focused on liability with the most common mandate being $1million of host liability.

Short term rental property owners should contact their local agent to discuss coverage options. Additionally, if contracted with a professional manager, short term rental property owners should ask if the manager offers access to a program that satisfies the local ordinance.

Carrier Rating and Quality.  If the short term rental insurance carrier is classified as Admitted, it is likely evaluated for financial strength by Moody’s, AM Best, Demotech, or Standard and Poor’s.  Companies with a rating of A- or higher are recommended.

Admitted and Surplus Lines.  Admitted companies are required to file and obtain approval for policy forms; additionally, they are backed in most states by a Guarantee Association, which makes provision for the state to take over the in-force insurance policies in the event of carrier insolvency.

However, due to the specialized nature of short term vacation rental insurance, admitted carriers often cannot provide coverage for many risks associated with short term rental activities.  Non-admitted companies in the surplus lines and excess markets such as Lloyds of London can provide coverage for specialty risks including coverage for rental risks related to lease contracts under 30 days, bed bug infestation, guest-caused property damages, short term rental related liability and loss of rental income. A licensed surplus lines broker can procure such coverage.

Experience of Agents. Licensed insurance agents have varying degrees of expertise in short rental insurance.  Look for agents and agencies who specialize in short term rental related insurance.  Also, given the multi-state nature of the vacation rental business, look for agencies or agent networks with multi-state licensure.

Bundle Discounts. Sometimes an online quote falls short of telling the whole story.  Some companies may offer discounts when you purchase additional lines of coverage.

Availability in Your State. Some programs may offer fantastic coverage at a great price; however, they may not be approved to write business in your state. Likewise, even if a provider is authorized to issue policies in your state, not all policy provisions may be available in your state.  A licensed insurance agent can help you analyze your insurance needs and assist with making a prudent determination.

Customer Service and Claims Support. The right limits at the right price are core considerations; additionally, getting the support you need when the time comes to modify your policy or file a claim is a vital consideration.

  • Avoid companies or programs with a track record of frequent consumer complaints.
  • Also, ask questions about the claims process.
  • Whether participating in a professional property managers program or purchasing short term rental insurance from your local agent, it’s important to confirm ongoing support and timely reimbursement for claims.
  • A quality claim process in the 2020s will feature online claim filing, auto response and notification, and timely reimbursement for your guest-caused contents damages.

Ethical Conduct. Ethical practice is vital to all endeavors.  Look for providers and agents who model ethical practice by exhibiting honesty, professionalism, and lawfulness.

Coverage Features and Selection

Knowing what to look for is vital.  Superior short term rental insurance programs will protect the following:

Dwelling Premises Liability Additional Living Expense Coverage for Amenities
Other Structures Tenant Liability Loss of Rental Income Bed Bug Infestation
Personal Property and Contents Medical Payments Damage to Adjacent Property Golf Cart

Additional Policy Types  

No one insurance policy can address all risks.  Given the limitations of homeowners insurance and short term vacation rental insurance, it’s important to consider other policies such as

  • Flood Insurance, especially in coastal and other flood-prone areas
  • Earthquake Insurance, especially in areas with high risk
  • Wind Insurance, especially in coastal areas and areas with elevated risk of tornadoes
  • Commercial Insurance for other business activities
  • Insurance for motorized vehicles such as automobiles, boats, and golf carts.
  • Umbrella Insurance for coverage to increase limits and extend liability protection to all areas where the insured has exposure.

Keep in mind what short term rental insurance is not:

  • Not Major Medical, Life, Accident, or Disability Insurance for personal health and income related protection.
  • Not Event Insurance for large gatherings such as weddings in common areas or away from the rented vacation rental unit’s premises
  • Not Travel Insurance for risks incidental to planned travel such as cancellation, interruption, delay and lost or damaged baggage. Travel Insurance programs such as those offered by authorized retailers of InsureStays through the RentalGuardian® platform can be purchased voluntarily by travelers.

Scope of Short Term Rental Insurance Coverage

 Short term rental insurance has a focused scope.

  • It is typically limited to protection against damages at or arising from the premises of the rented unit during a contracted short term rental stay. There is no coverage for common areas.
  • Typically, short term rental insurance will respond to damages arising from a contracted short term rental stay that spread from the rental unit to adjacent or neighboring property. It may also cover damages to the property of tenants in the neighboring property.
  • Coverage may not apply to amenities and may exclude recreational property such as golf carts, skateboard/ bike ramps or trampolines.
  • Coverage may have sub limits for fine arts and antiques.
  • Coverage typically excludes firearms, precious metals, important documents, and jewelry.

Actual Cash Value vs Replacement Cost.

Actual cash value (ACV) for property damage applies depreciation for claimed items.  Replacement Cost (RC) coverage provides for reimbursement without depreciation.

Purchasing ACV coverage can be detrimental because although the premium is lower than RC coverage, reimbursement may be significantly less than the actual cost for repairs or replacement. Typically with RC coverage, on a covered loss you will receive reimbursement for the full cost to replace a ruined item with a new one of similar kind and value.

Choosing Coverage That is Right for You

Before making final purchase, be sure to understand

  • Limits of the Protection Program
  • Cost of the Protection Program
  • Deductibles for each coverage or program section
  • Applicability of the program to the actual use of the home
  • Additional coverage needs not addressed by the policy or program
  • Location factors, being sensitive to
    • Risk exposure such as hurricane, mud-slide, flood;
    • Unique risks particular to the property such as amenities, pools, and other structures,
    • Local requirements, ordinance, or law regarding the required insurance limits for short term rentals, zoning, code and safety requirements, and other factors.
  • Customization features

When to Contact Your Insurance Agent

It is important to remember that your insurance is written based on the ownership, condition, valuation and classifications at the time of application.  It is your responsibility to contact your agent or insurer whenever there is a change in anything that may substantively impact rating or eligibility such as

  • Renovation
  • Adding or removing the property from a short vacation rental program
  • Change of use to Primary or Secondary

You should also contact your agent whenever you become aware of any incident or circumstance that has, will, or may give rise to a claim against your policy.