Short-term rentals have become popular over the last several years, with industry leader Airbnb currently boasting 5.6 million active listings worldwide. Short-term rentals can be an attractive alternative to traditional hotels. Travelers can often gain access to more amenities and a more comfortable environment for a lower price, making them increasingly appealing.
These types of rentals can also generate extra income for homeowners. Before deciding to rent a portion of your home for a vacation rental, though, you need to consider how your homeowners insurance views short-term rentals. Running a vacation rental from your primary residence is rarely included in your existing homeowners insurance policy because it is considered a business venture. This means you will need to purchase separate coverage to adequately cover your property and liability exposure.
Who short-term rental insurance applies to
Short-term rental insurance is generally only needed if you have paying guests in your home; it does not apply to family members or friends who are staying with you for free. Most standard homeowners insurance policies will cover non-commercial guests who are visiting your residence.
Short-term rental insurance is designed to cover your property and liability exposure while your home is rented. For example, if a paying guest injures themselves and sues you, your short-term rental insurance’s liability coverage will help protect you financially. Short-term rental insurance is designed for short-usage cases and not year-round rentals to the same tenants. For the latter, you will need landlord insurance.
Short-term rental insurance explained
Many insurance companies offer short-term rental insurance as an endorsement or rider, meaning that the coverage is added onto your current homeowners insurance policy. However, some companies may require that you obtain a separate policy to cover your short-term rental. Whether you are renting a room in your house or another house on your personal property, this coverage can protect your assets in the event of an accident.
Depending on the way your endorsement or rider is written, you may be able to pay only for the nights you have guests staying at your property, not continuous coverage. This can help reduce your costs if you only plan on offering your property as a rental on a part-time basis.
Common short-term rental coverages include:
- Loss of income
- Excess use of utilities
- Liquor liability
- Identity theft
To obtain short-term rental insurance, you can check with your current home insurer to see if it offers a policy or endorsement/rider. If you are unable to get coverage from your current carrier, explore other home insurance companies to compare prices and coverage. Engaging your insurance agent may also be beneficial in this process.
Hosting as a renter
Homeowners are not the only ones taking advantage of the short-term rental market. If you currently rent your apartment or home and want to sublease it as a vacation rental, you also need to consider your insurance coverage. Whether you plan on listing the entire unit or just one room, you first need to check your rental agreement to see if your landlord prohibits subletting.
If subletting is allowed and there are no other prohibitive agreements in place, you should start thinking about additional insurance coverage. Ideally, you already have renters insurance coverage in place. If not, you should consider obtaining a policy before hosting paying guests. Just like homeowners, renters may find this additional coverage as an endorsement/rider added to their current policy or you may need to purchase another policy entirely.
Companies that offer short-term rental insurance
If you have decided to purchase a short-term rental policy, the first step is to compare quotes from different companies, according to the Insurance Information Institute (Triple-I). Not only does this help you to get the best price for your plan, but it can help you get the specific coverages that you want.
National and regional property insurers that offer short-term rental insurance include:
- Allstate Insurance
- Farmers Insurance
- Foremost Insurance
- Nationwide Insurance
- Progressive Insurance
- Prosper Insurance
How much does short-term rental cost?
Numerous factors go into determining short-term rental premiums. The location of the property will play a significant role, as will the condition of your home. In general, most of the variables that impact the premiums for your homeowners policy will also affect a short-term rental policy.
These factors can include proximity to fire stations, crime rates in the area, your credit-based insurance score and the types of construction materials that were used to build your home, according to the Triple-I. In general, renting your home or a portion of it is going to be viewed by insurance companies as a risk. Since insurance underwriting is based on risk, the premium that a company charges you will depend on the perceived risk of your specific rental situation.
Alternative options to protect your short-term rental
One alternative to short-term rental insurance you may consider is landlord insurance; however, this type of policy is usually designed for long-term rentals. Unless you plan to have the same tenants for an extended period of time, you may find that some insurance companies will not offer you a landlord insurance policy.
Another option is to consider finding an insurance policy that covers both your home and your short-term rental. This type of coverage streamlines the process and can potentially save you money since the coverage for the rental is likely coming from an endorsement/rider rather than a separate policy.
What Airbnb host insurance actually covers
If you book your property through Airbnb, you are also entitled to some automatic protection, although it may not provide as much coverage as a short-term rental policy.
When you become an Airbnb host, you are covered by the company’s host protection insurance. This coverage includes up to $1 million primary liability coverage of bodily injury or property damage. It also includes coverage for damage that your guests cause to common areas, such as building lobbies.
Host protection coverage does not include property damage from environmental factors such as mold, damage or injury from intentional actions or loss of earnings. If you need to file a claim, you must first contact Airbnb, who then puts you in touch with a third-party claims administrator.
In addition to the protection insurance, hosts also automatically qualify for Airbnb’s host guarantee. This covers any damage to your listed property and possessions up to $1 million. However, this is not considered an insurance policy and Airbnb still recommends getting additional insurance to protect your listing.
Bottom line: Get the coverage you need
If you are considering becoming an Airbnb or VRBO host, or using a similar short-term rental platform, approach the process as a business owner. You might be looking to make a little extra money, or you could be trying to turn this into a full-time business. Regardless, you need to take the appropriate steps to protect yourself and your property. Short-term rental insurance is a vital part of your financial planning if you are considering joining the vacation rental community. The Triple-I recommends you discuss your situation with an insurance professional before determining what the best approach is for coverage so that you are properly protected.