Hosting short-term guests comes with risks, and it’s crucial to have adequate insurance coverage in place to protect yourself and your property.
It’s important to shop for insurance early in the process of identifying your property since the cost of insurance can vary depending on the age and location of your property, rebuild cost and the amount of coverage needed, deductibles you are comfortable with, and of course, the use of the property. You’ll want to have a number for the cost of insurance in your estimations, so you don’t do a lot of work estimating other income and expenses only to find that insurance is too expensive or difficult to secure for a given property.
Disclaimer: Insurance is one of those complex areas where you need a consultation with a licensed professional. This post is not meant to be comprehensive, but to share our experience insuring many short-term rentals in hopes of helping homeowners access understand the basics, and ask the right questions.
Four Categories of Coverage
A few categories to consider are (1) damage to or loss of the property itself, (2) liability coverage (should guests get hurt or hurt someone else), (3) coverage for loss of income due to covered events such as damage or theft, and (4) minor accidental damage to the property or contents.
Keep reading for some tips on shopping for insurance, but first, we’ll share our go-to insurer which we use to get a figure on paper so we can quickly understand if a vacation rental investment bears out on paper.
Proper Insurance
We normally start with Proper Insurance. In addition to covering category 1 above, Proper offers liability insurance that addresses category 2: it covers guests while in (and even while not in!) the home, and damage the home does to them (simmer down, home). They also address category 3, loss of income. It’s nice to be covered if damage were to occur resulting in canceled stays and the inability to rent the property for a time. Many of the homeowners with whom we operate vacation rentals have chosen Proper, but not all. Our experience is that Proper has the best coverage and usually the highest price, so we’d recommend getting a Proper quote first, then comparing it with other sources to see whether you want to adjust your coverage and price from there. We have found that Proper doesn’t offer coverage on every property we submit though, so you may still have to shop for other providers.
More shopping tips:
Keep in mind that a standard landlord insurance policy is designed for a long-term tenant and may address category 1 above, but may not cover categories 2, 3, or 4. Your insurer could have coverage for category 4, but normally accidental damage to the contents of a property is covered either by a booking platform “guarantee” such as Airbnb’s Aircover or by an insurance policy or damage waiver which may be paid for by guests. It may also be covered by a cash deposit, but this is less and less common.
Where to Shop
If you are happy with your current insurer, start there. They may be able to offer discounts for bundling with existing policies.
It’s also prudent to shop for other insurers. At one time we only had a few to recommend, but now that vacation rentals have become more and more common, there are too many to list. Homeowners we work with have had good experiences with USAA, State Farm, GEICO, and others. It could be a good idea to use a broker to speed up the process but keep in mind that brokers may not be able to shop every insurer as some only offer insurance through their own agents.
How to Shop for Insurance
It’s very important as you shop for insurance to disclose the use of the property as a vacation rental for paid guests who will stay less than 30 nights. We suggest saying all the keywords: Airbnb, Vrbo, vacation rental, short-term rental, etc. so the agent creating your quote is clear on the coverage needed. Some companies offer landlord policies with an STR rider and some offer policies designed for STR specifically. Ask about the four categories of coverage above and take notes so you can compare coverage and price (premiums) and deductibles. Be sure and ask about any coverage limits, or exclusions.
Is a Hot Tub a Liability?
We get a lot of questions about the liability of having a hot tub, as well as pools, bicycles, kayaks, and other amenities at vacation rentals. What’s interesting about this is that, in our experience, more insurers have special conditions for bunk beds than they do for hot tubs. So insurance companies might know something that most people don’t about the risk involved in offering those items to guests. Here’s the point: The question of liability is really a question for your insurer. There’s an inherent risk in hosting people at a vacation rental (as there is in all of life). Your insurer will be your go-to resource for helping you ensure you can be comfortable with the coverage you have in place to mitigate those risks, so be sure to disclose any amenities or elements of the property you have questions about, even if they aren’t on the list of standard information your insurer will collect to give you a quote. We’ve seen insurers allow an amenity with no special conditions, while others allow the same with a disclosure on the listing (ie, “bunks beds are available at guest’s own risk”). In some cases, a written waiver may be required (like for kayaks or bicycles), and finally, some insurers will make a special condition (ie, helmets must be provided for bicycles).
After securing an insurance policy, it’s important to maintain coverage and handle claims appropriately. This may include keeping accurate records of rental activity, adhering to any safety or security requirements specified in the policy, and promptly reporting any incidents that may result in a claim. A good insurance representative will walk you through these requirements if asked.
In conclusion, as an STR host, having the right insurance coverage in place is crucial for protecting yourself and your property. By understanding what short-term rental insurance covers and excludes, researching insurance providers, and implementing best practices for maintaining coverage, you can enjoy the benefits of operating an STR without unnecessary risk.
Referral disclaimer: we receive a small referral reward when you get a quote from Proper, but our recommendation is based solely on experience and carries no additional cost to you.