Short-Term Rental Insurance

When it comes to short-term rentals, a standard homeowners insurance policy is rarely enough.
Seth Kniep
Jul 28, 2021
Real Estate Investing
Homeowners policies offer coverage to the owner-occupants of a house, along with any family members or non-paying guests who use the house. Most of these policies explicitly state that they do not cover losses associated with a short-term rental business. If you assume that your homeowners policy will cover property damage, personal liability, or legal fees related to your short-term rental, you could be in for a rude awakening.

The day-to-day operation of a short-term rental can be pretty uneventful. Guests check in, enjoy their stay, and check out. Then, your housekeeping team arrives to get it ready for the next group of guests. Rinse and repeat.

Unfortunately, it’s not always so simple. What if your guests damage your neighbor’s property? What happens if a guest is injured and threatens to sue? What if your guests throw a crazy party and destroy a rare pair of snow skis on display at your Mammoth Lakes rental property? (By the way, Mammoth is one of the best places in the country to own an Airbnb right now.)

The good news is that if you list your property with Airbnb, you’re likely already covered by their free Host Protection Insurance. And many other hosting platforms (like VRBO) offer free, built-in insurance similar to what Airbnb provides. But is the protection offered by hosting platforms enough?

Today we’ll look at the built-in coverage provided by hosting platforms, additional short-term rental insurance options, and several non-insurance ways to further protect your investments. By considering risk from these three perspectives, you can develop a short-term rental strategy to lessen your chances of suffering a substantial loss of income.

Built-in Coverage

Airbnb’s Host Protection Insurance offers up to $1,000,000 in liability coverage. This coverage protects you if you are sued by a guest (or a guest’s guest) who is injured or whose property is damaged while staying at your short-term rental. However, it does not cover damage to the host’s property caused by guests.

Imagine that a guest at your Airbnb falls on a slippery tile surface and breaks their leg. The guest claims that type of tile used was prone to excessive slipperiness, thus creating a hazardous situation. The guest initiates a lawsuit against the host, seeking damages. In this situation, Host Protection Insurance may cover the host, helping to pay damages owed to the guest and any legal fees owed by the host.

There's a lot of fine print regarding Airbnb's Host Protection Insurance, and hosts have said that the process of filing a claim can be tedious. You should dig into the details of the program and make sure you understand it before relying solely on Host Protection to insure your short-term rental.

Overall, Airbnb's Host Protection Insurance gets good reviews from hosts. It’s free and available to almost everyone who lists a property on Airbnb (hosts in mainland China and Japan aren’t covered). VRBO, and other hosting platforms, offer similar no-cost insurance to their hosts. Like Airbnb, VRBO’s insurance provides up to $1,000,000 in liability coverage.

Airbnb also offers its Host Guarantee, which can reimburse hosts for the costs of replacing furniture and other property damaged by guests. The Host Guarantee provides up to $1,000,000 in property damage coverage. 

Imagine that a guest at your Airbnb has had a bit too much to drink and falls through a screen door, tearing the screen and bending the frame beyond repair. In this case, you would first try to settle with the guest and retain a portion of their security deposit to pay for a new screen door. However, if a dispute arises and you cannot reach an agreement with the guest, Airbnb's Host Guarantee may be able to compensate you for the property damage. There is a fair amount of fine print with this program as well, and hosts have said that the process of detailing the damage done to their property and negotiating a payout with Airbnb can be exhausting. Overall, though, this is nice protection to have, and like the Host Protection Insurance, it’s free for Airbnb hosts.

Going Your Own Way

Whether or not you take advantage of the insurance options provided by your hosting platform, you’ll still need your own insurance. Maybe you’re a renter who occasionally lists their apartment as a short-term rental. If so, your renter’s insurance policy will probably not cover the personal property in your unit if it is damaged by a guest, and you may want to look at additional coverage options. 

Or, suppose you occasionally use your primary residence as a short-term rental. In that case, it makes sense to start with standard homeowners insurance, then talk to your insurer to see if they can add additional coverage that protects your short-term rental business. Many insurance providers have adapted to the changing real estate landscape and now offer various insurance products to meet the needs of short-term rental owners. Allstate, for example, has its HostAdvantage Home-Sharing Insurance program, which can be added to an existing Allstate homeowners policy. HostAdvantage offers additional coverage and protects homeowners against theft and damage to personal property caused by short-term rental guests. Progressive, Farmers, Nationwide, and Liberty Mutual have similar programs. You should evaluate quotes from multiple different insurers to find the policy that works best for you and your budget.

There are also several new insurance companies that specialize in short-term rentals, like Proper Insurance. Proper offers policies that protect your property, shield you from liability, and cover lost income (Airbnb’s insurance generally does not cover lost income). VRBO officially recommends Proper for short-term rental owners looking for a specialized insurance policy.

Beyond Insurance

Beyond insurance, there are several other steps you can take to protect your short-term rental business:

  • Collect a Security Deposit: Airbnb simplifies the process of collecting a security deposit and holding it securely until any disputes are settled. Plus, when a security deposit is required, guests are putting their money on the line. As a result, they’ll automatically be more respectful of your place, lessening the chances that they cause any significant damage.
  • Look for Potential Hazards: Inspect your property for high-risk areas, e.g., a rickety old balcony, a poorly maintained chimney, etc. Hire contractors to fix these problems, and don’t skimp on quality. Getting a great deal on a balcony doesn’t mean much if it collapses and you get sued.
  • Don’t Slack on Maintenance: It’s critical to keep your rental well maintained. Staying current on preventative maintenance will keep minor problems from turning into big ones. It may be tempting to delay paying for preventative maintenance, but in the long run, preventative maintenance is more affordable than emergency maintenance.
  • Avoid Picassos and Rembrandts: Don’t decorate with anything priceless or irreplaceable. This is not to say that you should decorate your rental with cheap junk. Instead, strive to strike a balance between affordability and perceived quality. Ikea and Target are your friends here. If you use a property as a residence and a short-term rental, you might consider having a locking storage area for when you’re renting out the home. That way, you can easily keep any vintage guitars, luxury throw pillows, or original Basquiat paintings out of harm’s way.
  • Form an LLC: One last step you can take to protect yourself is to own your investment properties as a limited liability company (LLC) instead of as an individual. LLCs provide personal asset protection. If your LLC is sued, any personal assets (like a car or savings account) will be much harder for the person suing you to take. If you’re interested in LLC formation, you should seek the advice of a lawyer that you trust.

The Final Word on Short-Term Rental Insurance

Insurance is essential for short-term rental owners. Any lawsuit or property damage is a massive headache, and in a worst-case scenario, it could be a severe financial disaster that destroys years of hard work you've put into starting your business. Luckily, the free protection provided by hosting platforms goes a long way. Combined with additional coverage from leading insurance companies, or new insurers that specialize in short-term rentals, you’ll have a rock-solid strategy for managing risk. An ounce of prevention is worth a pound of cure, so take the time to do your research and find a policy that meets your needs.

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Seth Kniep

Married a pearl. Fathered 4 miracles. Fired his boss. Turned a single dime into $104,857. Today, a self-made millionaire, Seth and his team of 8 badass coaches teach entrepreneurs how to build passive income on Amazon.

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