Short Term Rental Insurance: Investor Guide

Short term rental insurance is one of the requirements for running a successful and problem-free Airbnb business.

This article covers everything hosts need to know about obtaining the right rental property protection for their vacation homes as more and more owners choose to list their houses on platforms like Airbnb and Vrbo.

We’ll help you understand what this type of insurance entails, why it is so important for investors, what it covers and what it doesn’t, and how much it costs. Finally, we’ll provide you with practical tips on how to select the best policy for your investment property.

Key Takeaways

• Though it’s not legally required, short term rental insurance is a must for the owners of Airbnb rentals.
• This insurance can protect against the risks associated with renting out on a nightly basis, including both property damage and personal liability.
• Vacation rental insurance policies can vary widely, so it’s important to customize your policy to cover the precise needs of your property.
• Steadily offers the best options for hosts in all US markets.

Understanding Short Term Rental Insurance

As a first step, let’s define this important concept in property investing and see how it’s different from other types of real estate insurance.

Defining Short Term Rental Insurance and Its Necessity

Short term rental insurance is a type of coverage that usually works in addition to homeowners insurance, but it might be its own policy too. It is specifically tailored to the needs of investors who rent out their properties for less than 30 days at a time.

The reason that hosts that list their rental property on Airbnb, Vrbo, Booking.com, and other similar websites need this extra protection is that the standard home insurance does not protect properties and their owners when they are rented out to paying guests. They cover only situations where the owner is on site, this is their primary residence, and involved parties are the owner or non-paying guests.

Meanwhile, this special policy, also referred to as Airbnb insurance, explicitly covers risks stemming from renting out on a short term basis.

Differences Between Short Term and Long Term Rental Insurance

Landlord insurance is typically geared towards properties that are rented out on a monthly or annual basis rather than on a daily basis, so vacation rentals remain outside its scope.

At the same time, the latter face unique risks originating from the fact that they are rented to short term guests who feel less compelled to take good care of properties. Guests might also suffer from more frequent injuries than long term tenants because of their unfamiliarity with the house and its peculiarities.

In addition, long term and short term rental property insurances differ in terms of coverage as well. Landlord insurance usually replaces a homeowners insurance, so it covers both damage from tenants and loss from natural disasters as well as personal liability. At the same time, the latter excludes events like natural phenomena as it is often obtained on top of homeowners insurance.

Why Short Term Rental Insurance Is a Must for Property Investors

Getting the right insurance is a key component of good short term rental property management. Starting a vacation rental business is associated with multiple risks that can result in thousands of dollars of additional costs.

While Airbnb rentals often bring significantly more revenue than traditional rentals, they also generate more expenses. Having to pay for damage caused by your guests might adversely tip the scales and turn your positive cash flow property into a negative one.

All this can be prevented – and your rental business can remain profitable at all times – with the proper coverage.

It’s important to know that most vacation rental listing platforms offer their own insurance for Airbnb hosts, but they are not always comprehensive, so additional policy might still be needed.

The most prominent examples include:

• Airbnb AirCover for Hosts
• Vrbo Liability Insurance
• Booking.com Partner Liability Insurance

Risk Management for Short Term Rentals

Short term landlord insurance is not obligatory by law. However, it acts as a risk management mechanism for the owners of vacation rentals. It protects you and your property against a wide range of events that can lead to damage and loss. We will cover the exact list of items in a bit.

The Impact of Guest Behavior on Your Investment

Airbnb guests are notorious for their reckless behavior, destroying properties or harming themselves during wild parties. Indeed, guest behavior is the main factor that makes short term rentals more prone to costly risks than long term rentals. Thus, having a good insurance policy is the key to safeguarding yourself and your investment property against the negative effect of guests.

Key Coverage Options in Short Term Rental Insurance

In order to help you fully comprehend the importance of insurance for Airbnb, we’ll go over the coverage provided by these policies.

Property Damage Protection: What’s Covered?

First, the temporary rental coverage includes damage to and loss of the main structure of Airbnb rentals and Vrbo rentals, additional structures such as garages and sheds, amenities such as swimming pools and hot tubs, and host personal items used in the short term rental business such as furniture, appliances, and electronics. The dwelling insurance covers all parts of the building like roof, walls, floor, and windows.

In terms of covered events, these tend to include fire, smoke, explosions, theft, and vandalism. Importantly, the policy acts as guest damage insurance to protect against losses caused by renters, and in this way it offers relatively comprehensive real estate investment security.

Liability Coverage: Safeguarding Against Guest Claims

Short term rental insurance functions as liability insurance. It covers both medical expenses and legal fees in case an Airbnb guest suffers a bodily injury on the property and requires medical services and/or decides to sue the host.

So, let’s say you have a host who falls down the stairs because of their reckless behavior but claims the reason is the fact that the staircase is poorly maintained. Your policy will take care of any medical costs and legal expenses without you having to pay anything out of pocket. Moreover, if your guest manages to break down the stairs during their fall, the insurance provider will cover the repair costs as well.

Loss of Income: Security During Unplanned Vacancies

Another major aspect of short term rental property insurance is the protection it provides against lost Airbnb income. In case your property becomes unrentable for a certain period of time as a result of a covered event, the insurance company will pay you for loss of rental income.

This means that your Airbnb business will continue generating money and remain cash positive even if it’s temporarily halted due to unforeseen circumstances.

Special Considerations for High-Turnover Rentals

The ultimate goal of hosts is to score a high Airbnb occupancy rate because this is the way to earn revenue with vacation home rentals. However, properties that are occupied by different guests staying for a night or two have different needs from properties like Airbnb monthly rentals, where the home hosts the same guest for a month or more.

These special requirements need to be taken into consideration when choosing the best short term rental insurance policy.

What Does Vacation Rental Insurance Not Cover?

While holiday home insurance covers a lot of scenarios that can happen when renting out on a daily basis, they do not cover absolutely all possible damage and loss. For instance, it excludes normal wear and tear, natural disasters such as floods and earthquakes, guest personal belongings, and loss of rental income because of poor marketing strategies resulting in inability to rent out.

For some of these things, you can obtain additional coverage such as homeowners insurance, flood insurance, or earthquake insurance.

Cost of Vacation Rental Insurance

The short term rental insurance cost can vary significantly, based on location, property, additional structure, amenities, personal belongings, coverage, occupancy rate, deductibles, and bundling. According to Steadily, a leading rental property insurance provider in the US market, the average value is between $2,000 and $3,000 per year. However, the price might reach as high as $9,000 in hot Airbnb destinations like the Florida and California real estate market.

Some things that hosts can do to lower the expense include:

• Invest in a market that’s considered low-risk
• Maintain the property in top shape through regular inspections and repairs
• Do not provide luxury furnishings and appliances
• Install a comprehensive home security system
• Use technology to host responsible guests
• Consider increasing the deductibles
• Bundle the short term rental insurance with others into a single policy
• Pay annual premium

Choosing the Right Insurance for Your Short Term Rental

Just like any other aspect of short term rental management, there are many different options when it comes to vacation rental insurance. It is important to select the most appropriate policy for your rental and yourself as a host.

Here are the main factors that you need to take into account in the process:

• Your location: Different markets have different requirements because of being more or less prone to political commotion and natural disasters. Some of the best short term rental markets experience frequent floods or wildfires, so it might be worth getting additional coverage. For example, short term landlord insurance in Florida needs to cover the higher rate of natural disasters.
• Your property type and condition: Luxurious, expensive, and older properties – especially historic buildings – need additional coverage.
• Amenities and personal belongings: If you have a swimming pool or a hot tub, they have to be properly insured.
• Types of guests: Renting out to students and other young guests is associated with more guest damage and requires higher deductibles.
• Rental frequency: Properties that are rented out all the time require more coverage than properties rented out occasionally due to the increased risk.
• Insurance company: Different insurance companies offer varying coverages, protections, and prices.

Actually, choosing a good insurance company is a major part of selecting the right policy.

The best short term rental insurance companies in the US market are:

• Steadily: This is a company that specializes in insuring rental properties and has dedicated policies for short term rentals. They work with all types of single and multi family properties and cover both occupied and vacant rentals. They cover the property, attached and detached structures, personal items, liability, and loss of rental income.
• Allstate
• Farmers Insurance
• Proper Insurance
• CBIZ
• Obie

Protecting Your Vacation Rental with the Right Insurance

While getting short term rental insurance adds to your operating expenses, it is a must in order to have your property and yourself well protected against damage and liability. With dozens of possible insurance companies and policy coverages, you need to analyze the needs of your property and tailor your policy to its requirements. This will help you strike the right balance between coverage and cost.

Steadily is a top option for hosts across the US market with its national coverage, comprehensive policies, and competitive prices. Simply enter your address below to get an instant quote.