Owning a vacation rental is a great way to earn income. But it also comes with risks that vary from not having enough guests to them damaging your property.
What is vacation rental insurance?
Vacation rental insurance is a way to secure your assets, workers, and guests. Depending on the insurance company, either you or your guests pay an additional fee for assured protection. This company will then pay out for legitimate claims.
What to consider when looking for vacation rental homeowners’ insurance
Not all vacation rental policies are created equal. Just like buying a car, there are packages that you may not need. The policy you choose will depend on:
- The type of property you own
- How you plan to use it (your use vs rental time)
- The kind of coverage you’re looking for
If you’re using Hostfully as your property management platform, we recommend you look into the platforms we integrate with:
- Safely
- SUPERHOG
- InsuraGuest
- Autohost
The first three are vacation rental insurance policies that will also do a partial guest screening to protect your property from bad guests.
Autohost is different. It isn’t an insurer but rather performs thorough background checks on guests to weed out inappropriate ones and reduce the chances of intentional property damage.
What does vacation rental insurance cover?
Three of the most important features you should look for in a policy are:
- How your guests are protected
- What damages to your property are covered
- How your rental income is guaranteed in case of serious damage
#1: Liability
In an ideal world, your guests won’t have accidents in your vacation rental. But if anything does happen, the last thing you want on your mind is what your policy may or may not cover.
When you choose insurance, look for protection that covers legal fees and liability claims from a guest who has been hurt while staying in your property. Some policies may even cover you if you’re ultimately found responsible for the damages.
The biggest risk of owning and operating a vacation rental is your liability for the safety and security of your guests. The insurance you end up getting must minimize or eliminate this risk.
#2: Property and belongings
The second biggest risk that comes with owning a vacation rental property is damage to your home. Even the most careful guests sometimes make mistakes that can lead to significant damage to your home and belongings. Vacation rental insurance should cover at least some of the cost of replacements and repairs.
#3: Rental income
When you run your vacation rental like a business, you need to take steps to ensure the income generated is also protected.
If damages make your vacation home unrentable, some vacation rental insurance policies will reimburse you for a percentage of lost income. This type of coverage doesn’t always cover 100% of lost income. However, it will prevent you from going into the red until repairs are complete and the property is operational again.
Types of vacation rental insurance for owners & property managers
Vacation rental owners sometimes ask themselves if they really need additional insurance coverage. After all, don’t vacation rental platforms like Airbnb offer a host protection guarantee? Isn’t that enough? The short answer is no. Discover the different options you have to protect your assets and choose the one that suits you best.
Online travel agency (OTA) insurance
Major platforms like Airbnb and VRBO offer primary liability coverage. However, many homeowners are surprised to find out that these general platform policies may not cover the following:
- Damages that occur intentionally, not on accident
- Defamation of character, slander, accusations, or bad reviews resulting in a loss of business
- Issues with the property such as bed bugs, mold, or pollution
Platform policies are great for small issues but should not be a substitute for standalone vacation rental insurance. Plus, if you want to get reimbursed in case of legitimate claims that exceed the OTA protection program, you should look into additional insurance options.
You can collect a security deposit for your vacation rental directly from some OTAs to double your protection. However, keeping it to cover damages caused by the guest can cause them to leave a bad review.
Property protection insurance
This is a type of insurance that covers damages to your property. If you’re getting a property protection policy, you should double-check if it covers damage caused by vacation rental guests. Often these types of policies cover harm in case of natural disasters or accidents caused by the people living there, not from hosting a short-term rental.
Types of property protection insurance include:
Liability insurance
This type of protection covers claims arising from injuries or damage to third parties—including people or property. Liability insurance doesn’t cover intentional damage, criminal prosecution, or contractual obligations.
Getting liability insurance is a way to protect yourself and others in case your guests get hurt in your property or in case something from your property damages something else. For instance, your tree falling and breaking your neighbor’s fence.
Standard homeowner policy
The standard homeowner policy is part of property protection insurance and shields your primary home against any damages or losses.
A homeowner policy usually covers loss or damage of the interior, exterior, personal belongings and furniture, and injury to a third party. You should also have a house warranty and a natural disaster policy to be fully covered.
Vacation rental insurance
A vacation rental insurance is a type of policy that covers losses and damage to your short-term rental property, assets, and guests.
This is similar to the homeowner protection policy but aimed at your short-term rental business. Since you’re renting the property to make a secondary income it’s considered a commercial activity and the homeowner’s policy doesn’t apply.
Plus, vacation rental insurers are used to these types of claims and the payout is usually faster—if the claim is legit.
What does vacation rental insurance cost?
The cost of vacation rental insurance varies state by state and depends on a few factors. However, a quick estimate is two to three times the amount for regular homeowners insurance.
Simply put: vacation rental insurance is more expensive than homeowners insurance. Here’s why:
- The home sits empty for extended periods of time. That means there’s an increased chance of damage when people aren’t around.
- Renters aren’t the homeowner, so they aren’t as careful as you would be. This involves a higher risk, which translates to more expensive premiums.
- The policy covers property and lost income. That’s more risk to cover for the insurer.
What determines the cost of vacation rental insurance?
There are four factors that determine the cost of your rental insurance plans:
1. Property value
There are several things that determine the home value, the amount per night you can charge, and how much your vacation rental insurance will be. These include:
- Location
- Number of bedrooms and bathrooms
- If you allow pets and kids
- Off-street parking
- Amenities
In general, the more desirable the location and the bigger the home, the more expensive the value of the insured property is. That also means higher earnings, which the insurance company has to plan for.
2. Occupancy rates
While all vacation homeowners want a full rental calendar, more bookings mean higher premiums when it comes to insurance. Insurance companies factor in that more renters coming and going involves more risk.
3. The size of your deductible
If you want to reduce the amount you pay for vacation rental insurance each month, consider opting for a plan with a higher deductible. You’ll take on more financial risk but in the long run, it may save you money.
4. Amenities
Vacation homeowners often choose to add amenities to their homes to enhance the guest experience. While these features increase the value of the property and the overall guest experience, they also increase the cost of your vacation rental insurance. More items to cover equals more risk for the insurer.
5 vacation rental insurance tips
Buying rental insurance isn’t something you do on a whim. Choosing the right vacation rental insurance could make a big difference if there’s a lawsuit or severe damage to your property. As you search for the right policy, keep these five tips in mind:
Tip #1: Read the fine print
Read the entire policy, even the fine print. Is it the most glamorous aspect of being a vacation rental owner? No. But you need to make sure you have a firm understanding of coverage options.
You can also get referrals from friends and family who own vacation rentals. This can give you a head start in your searches.
Remember that no matter what they tell you, insurance companies all have different coverage. You need to find the one that’s the right fit for your property.
Tip #2: Know the difference between homeowners’ insurance and vacation rental insurance
Homeowners insurance is designed to help cover the costs when there is damage to your primary residence. These policies provide coverage for owner-occupied properties. If something happens to your home (or someone in your home) when it is being rented out, your homeowner’s policy will not cover it.
Don’t rely on your existing coverage to protect you from accidents that happen when you have guests in the home. Vacation rental insurance exists so that whether the home is occupied by you, the owner, the guest, or is empty, you’re covered.
Tip #3 Don’t rely on the rider option
Some homeowner insurance policies will offer a rental rider option. This is coverage for damages if a home is rented out occasionally instead of regularly.
This may seem like a good idea for vacation rentals that don’t have a steady stream of bookings. The million dollar question (literally) is what constitutes “occasionally”? This is where an insurance company can get away with not providing coverage.
Why take that chance? If you’re going to spend money on insurance, make sure you’re covered no matter the frequency of your rentals.
Tip #4: Think like a business owner
Ask any successful vacation rental owner their tips for success, and they’ll tell you that they run their properties like a business. This means creating a business plan, factoring in risks, performing due diligence, and spending money to make money.
Look at insurance as an expense related to the operation of your rental property. You’re guaranteeing the long-term viability of your operation and paying to eliminate risks that could cost you everything.
Tip #5: Keep looking until you find the right policy
Researching policies and companies can get overwhelming and tiring. At one point, you’ll narrow it down to two or three options. Each will have distinctive pros and cons. This will make your final decision even harder to make.
At this point, it’s tempting to put this project aside and go do something fun like thinking of creative ways to increase your rental’s profits. But remember the risks of not buying insurance and consider that this isn’t something you need to do often. Once you get it done, you don’t have to think about it for a few more years.
Vacation rental insurance: the key to protecting your property and your guests
If you’re thinking of getting a vacation rental insurance policy, you should look for one that protects your property and belongings, your guests and workers, and your income.
Vacation rental insurance tends to be more expensive than regular policies as you have more people entering and staying at your property. But, generally, the price will depend on:
- The property value
- Your occupancy rates
- The size of your deductible
- The property amenities
Vacation rental insurance is a must if you want to safely and securely rent out your property. It’s one of those things that you pay for and hope you’ll never use, but are thankful for when you do.
