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Short-term rentals are a popular way for homeowners to earn passive income from investment properties or vacation homes they only use part-time. While owners generally maintain active home insurance policies on these properties, damage that occurs from guests staying in a short-term rental might not be covered. For that, you’ll typically need short-term rental insurance.
Here’s what you need to know about short-term rental insurance:
- Short-term rental insurance explained
- Who needs short-term rental insurance?
- How much does short-term insurance cost?
- What about Airbnb or VRBO insurance?
Short-term rental insurance explained
Standard homeowners insurance is residential property insurance that protects owner-occupied properties, aka your primary residence. Unless you only rent your home out for a couple weeks a year or less, short-term rentals are considered a business. As long as it’s in service as a short-term rental, your home isn’t considered owner-occupied by your insurance provider.
This is where short-term rental insurance comes into play. Unlike landlord insurance for long-term rentals, short-term rental insurance protects not only the structure of your home but also your personal belongings while your home is being used as short-term lodging. It also provides liability coverage in case a guest is injured on your property.
Insurance companies typically offer short-term rental insurance as a rider (add-on) to your current policy.
What short-term rental insurance covers
Short-term rental insurance expands the coverage offered by your homeowners insurance policy to periods when paying guests occupy your home, and it also covers damage caused by guests. Coverage typically includes protection for the following:
- The structure of your home and other buildings on your property
- Personal belongings you keep on the property
- Equipment and amenities you make available to guests
- Personal liability if a guest injures themselves on your property
- Loss of revenue if damage forces you to take your property out of service as a vacation rental while it’s being repaired
If you’re considering doing short-term rentals or you already rent your home on a short-term basis, contact your homeowners insurance carrier to find out if it offers short-term rental insurance. If it does, get a quote, and then compare the coverage with other insurers to ensure you’re receiving the best rate.
Who needs short-term rental insurance?
Short-term rental insurance is strictly for property owners who rent their home to short-term guests, and who rent it often enough that it constitutes a business use of the home. Some insurance policies may even require that you purchase short-term rental insurance if you rent your home for any length of time.
To help determine whether you need short-term rental coverage, it’s important to understand the factors that make a property a short-term rental.
You charge rent
Short-term rental insurance is meant to cover business use of your home because your standard homeowners policy only covers residential use.
You don’t need short-term rental insurance if you simply loan your vacation property to family or friends, even if they cover expenses incurred by their use of the home, such as cleaning fees. Nor do you need it if you have family or friends join you on vacation and stay with you for free.
You only rent short-term
From a legal standpoint, the rental period that defines a short-term rental versus a long-term rental varies by jurisdiction. In many parts of the U.S., a property is considered a short-term rental if it’s rented out for 30 days or less.
How much does short-term insurance cost?
A number of factors determine how much you’ll pay for short-term rental insurance. Some insurers may require you to replace your homeowners policy with one that covers both personal and business uses, which will cost you more.
Premiums for comparable policies can also vary from company to company, but they all look at similar factors when calculating your premium, such as:
- Location (such as crime rates and proximity to fire stations)
- Proximity to major tourist attractions
- The cost of rebuilding your home
- Amenities that pose liability issues, such as a pool or hot tub
- Frequency of vacancies
- Selected coverages
- Your insurance score
What about Airbnb or Vrbo insurance?
Certain rental platforms, like Airbnb and Vrbo, have protections for homeowners who rent their properties through them. Even though some, including Airbnb, offer actual insurance, at least for liability, the coverage you get is likely to fall short of the coverage provided by short-term rental insurance. These are peace-of-mind plans meant to supplement your insurance, not replace it.
For example, Airbnb provides AirCover to its hosts for free. At first glance, the benefits look similar to short-term rental insurance. You get $1 million in personal liability insurance coverage, which is the minimum you’d expect from short-term rental insurance, and $1 million in property damage protection. You also receive reimbursement for lost income in the event you have to cancel bookings because of damage.
Vrbo’s owner-protection program consists of $1 million in liability insurance that covers claims made against you if a guest injures themselves on your property, or if a guest damages a third-party’s property and that third-party sues you for damages. You’re still expected to maintain your own home insurance. If you don’t, or if your insurance doesn’t contribute to a liability claim stemming from a guest stay, Vrbo will impose a 25% deductible.
Why is Airbnb or Vrbo insurance insufficient?
So where do these coverages fall short? First, income-loss protection applies only to bookings already confirmed. It doesn’t reimburse you for income you lose when you take your damaged property off the rental market while repairs are underway.
More important is the fact that damage protection coverage, which is not insurance, is limited to accidental damage caused by the guest, invitees of the guest, and the guest’s pets. Guest damage is also only covered if it occurs during the booking period. If the guest checks out late or returns later and causes damage, AirCover might not cover it. Vandalism, along with a number of other perils that short-term rental insurance covers, aren’t covered by Airbnb or Vrbo insurance.