Many landlords are converting long-term rentals into short-term rentals to maximize profits. Your short-term rental still needs rental insurance, but this may be a little difficult to find in some cases, with some carriers not wanting to insure the property. Let’s take a look at the ins and outs of short-term rental insurance so that you can shop around with the right information to make an informed decision.
What Short-Term Rental Insurance Is
Short-term rental insurance, also known as vacation rental insurance, is a type of home insurance policy that covers losses that can occur to a property that is rented out to guests on a day-to-day or week-to-week basis. No guest stays at the property as a permanent residence, giving it a lot of turnover. This can increase the risk to property owners since guests don’t feel like the property is their home. Short-term rental insurance carriers cover the risks associated with these types of rentals.
How Short-Term Rental Insurance Works
Short-term rental insurance and Airbnb insurance for hosts work the same way rental property insurance works. You buy the policy to protect the property from covered losses. When there is a loss, you call the insurance company to open a claim that pays to repair the damage or replace the lost items. Short-term rental insurance is not purchased for each guest; it is a long-term policy that is in place for the entire year as you market and rent the property out. The insurance stays in effect even if the property is vacant, covering it in case there is a loss, such as a fire, when there are no guests at the home.
Who Needs Short-Term Rental Insurance
Anyone with a short-term rental, such as an Airbnb or Vrbo, must have rental insurance. If there is a mortgage on the property, your lender will likely require a specific policy that covers the structure’s replacement value. In addition to the structure, landlords want to get a policy that covers liability risks, such as someone falling down on the property and getting hurt, resulting in a lawsuit.
What Short-Term Rental Insurance Covers
Short-term rental insurance covers many common losses that can occur when renting out a property for guests. Typical losses include fire, vandalism, and wind damage that can happen to the structure. It also covers liability risks to pay claims of third-party injury or property damage. A common example of liability risk is if a guest falls down the stairs because a railing was loose, getting hurt and wanting you to pay for the medical bills.
Short-term rental insurance doesn’t cover certain losses guests may experience, such as theft of personal items. These types of losses would be covered by your guests' own homeowners or renters' policy that covers lost items when traveling. However, because your short-term rental is fully furnished, your policy should cover you for belongings that might be lost in a fire or stolen from the house.
Short-term rental policies will also cover landlords for lost rents. If you have a loss and can’t rent out the property, you will be covered for what you could have rented the property out for, ensuring you can stay in business during the claim.
Short-Term Rental Insurance Costs
Many factors go into the cost of short-term rental insurance, including the size, age, location, and construction of the home. Property owners should expect the pricing to be more expensive than a standard homeowner’s policy. On average, landlords can expect to pay anywhere from $2,000 to $3,000 for an annual policy on an average-sized home.
Homeowners Insurance vs. Short-Term Rental Insurance
A homeowner’s insurance policy and a short-term rental insurance policy are very similar. They both cover property owners for losses from incidents like theft, fire, water damage, and vandalism. However, a short-term rental insurance policy will be more expensive than a homeowner’s policy because it is rated for commercial use. When a property is rated for commercial use, it has more risk because guests are less likely to care for the home how a property owner will. For example, guests might not lock the door when they leave, exposing the home to greater theft risk.
Landlord Insurance vs. Short-Term Rental Insurance
Landlord insurance covers long-term rentals leased to residents for six months or longer. Short-term rentals are any rentals for less than six months but often are for a few days or weeks. Rental insurance for these two types of properties is similar. Both protect the landlord from losses such as fire, theft, vandalism, and wind damage. However, short-term rental insurance is more expensive than a typical landlord insurance policy.
Short-term rental insurance policies are more expensive because there is more risk that something will go wrong. After all, the tenants don’t have a vested interest in the property. While long-term guests won’t care about the home as a property owner would, they have a vested interest in having their personal property protected and will take measures to keep the home in good order – at least compared to short-term guests.
Pros and Cons of Short-Term Rental Insurance
The pros of short-term rental insurance are:
- Provides coverage for common risks
- Is a deductible business expense
- One policy covers all guests for the policy term
The cons of short-term rental insurance are:
- More expensive than homeowner’s insurance
- Doesn’t automatically cover damages from guests
Best Short-Term Rental Insurance Companies
If you are looking for the best short-term rental insurance, consider these companies, which prove to be among the best in the industry.
Obie Insurance is an insurance broker that specializes in policies for landlords. It offers comprehensive policies that protect owners from the various risks involved in having a rental property that includes fire, wind damage, and water damage. Policies are available in all 50 states, with more than $4 billion in insured assets.
Proper Insurance is a leader in the short-term rental insurance niche. This carrier is exclusively endorsed by Vrbo, giving it the credibility of a company devoted to short-term rentals. Proper Insurance’s policies offer lost rental income during losses, have no occupancy restrictions, and extend coverage beyond the home for a more comprehensive policy.
Farmers Insurance has short-term rental insurance available in all 50 states, with discounts available to certain professions, such as teachers. Farmers rewards long-term policyholders that don’t have claims. There is claim forgiveness if you have a claim, but it's the first one in five years. Additionally, deductibles decrease when there are no claims made. This happens without increasing the premium as a reward for responsible property ownership.
Allstate has a plan for homeowners who rent out a room or two of their homes. It’s called Host Advantage, and it provides coverage for homeowners who share their homes with guests instead of renting out the entire property. Allstate is known for having local agents who understand the local market and its risks to better help you assess risk and protect your property.
CBIZ specializes in rental property insurance. It offers policies in all 50 states and has an A- AM Best rating through its underwriting company, Tudor Insurance. CBIZ covers the property at replacement cost value and includes coverage for damage caused by a guest. Owners can customize the policy and change the coverage if the owner is occupying the property for a period of time.
Short-term rental insurance is a necessary business expense that all short-term rental property owners need to get. It protects against common losses such as fire and vandalism for properties being rented to guests for less than six months at a time.