Unpacking the Cost: Is Proper Insurance Worth It for Short-Term Rental Owners?

Understanding Your Options: Types of Insurance for Properties

The primary determinant of your insurance cost is the type of coverage you choose. Every home, townhouse, condo, or apartment, whether it’s a short-term rental or not, carries two types of insurance: property insurance and liability insurance. 

Property Insurance

Property Insurance encompasses physical damage to your property, which could be the building itself or the contents within, think of it as anything you can touch and feel. This also includes the income that the property generates. 

Comparison Between Basic, Broad, and Special Form Coverage for Property Insurance

The three types of property insurance coverage (this applies to building and contents) are: 

Basic Form Coverage might be the most affordable option, but it offers the most limited protection, covering only 11 specific perils (risks) listed in the policy. If a damaging incident isn’t among these listed perils (risks), you won’t have any coverage for the incident. 

Broad Form Coverage provides a wider scope of protection, covering the 11 perils mentioned in basic form coverage, along with an additional five perils. This means you have coverage against a total of 16 named perils, offering more comprehensive protection than basic form coverage. 

The most extensive and therefore, most expensive, is Special Form Coverage. It operates on an “all-risk” basis, meaning it covers all incidents unless specifically excluded in the policy. This gives you peace of mind, knowing that you’re covered unless the damage is due to a listed exclusion.

Proper Insurance is one of the only insurance companies in the United States that offers Special Form Coverage for a short-term rental building and contents.

Coverage for Lost Rental Revenue Explained 

As we outlined, the first component of property insurance is the coverage you select for your building and your contents (basic, broad and special). The second component of property insurance is the income that the property generates.  

This is important to understand for short-term rental owners who use a property as an income generating business. If you have a claim that makes your property uninhabitable for a certain time, you will want to make sure you have this coverage. While your property can’t be rented you will still have a mortgage to pay and bills stacking up. 

Fair Market Value Lost Rental Income is the lowest level of coverage offered for your rental income. If you see this on your policy, you have some coverage for lost income. However, it’s important to keep in mind: 

• The amount you receive for fair rental value will be based on all rental properties in your area. This includes long-term rentals and short-term rentals. This is a big issue for short-term rental owners because if you are in peak season for your beach home or mountain cabin, as you know, the amount of money a short-term rental generates vs. a long-term rental is drastically different. 
• Fair rental value is generally capped at 12 months of lost rental income. So, if you have a devasting wildfire and your property has to be completely rebuilt, the process can take 18 to 24 months until it is operational again. That means after 12 months, no matter how long it takes to rebuild your home, you are losing money. 

Lost Business Revenue is very unique to Proper Insurance. This is fantastic coverage if you rely on your short-term rental income in any way. With Proper Insurance you select the amount of coverage you’d like for lost rental income during the insurance proposal. We recommend calculating 18-24 months of your rental income, but you can select as much as you want ($10,000, $50,000, $100,0000, $500,000, etc.). 

• In the event that a covered claim prevents you from renting and generating income, Proper Insurance will pay the actual loss sustained, meaning your actual lost rental revenue. We look at your previous bookings, future bookings, or if you don’t have that short-term rental history we will look at comparable short-term rental properties in your area and pay what you’re losing. 
• There is no time limit on Proper Insurance’s Lost Business Revenue. You are simply subject to the limit that you choose. 

Proper Insurance provides unmatched coverage across the board. Our All-Risk Special Form Coverage for building & contents as well as Lost Business Revenue is just one area where our policy shines. Now let’s explore an equally important area of coverage for short-term rental owners: liability.

Liability Insurance

Liability Insurance safeguards you from potential legal claims resulting from incidents that occur on your property.  

Understanding Personal, Premise, and Commercial Liability Insurance

The three primary types of liability insurance are:  

Personal Liability Insurance is a typical component of Homeowners insurance, designed for primary residences. Many insurance agents may suggest adding a home sharing endorsement to a Homeowners policy when they hear you mention Airbnb. However, if the property is not your primary residence (where you live and receive your mail), this is absolutely the wrong policy and should not be offered to you as an option. And if this is what you currently have, we strongly advise you to call a trusted insurance agent, share your Airbnb or direct booking listing, and explain that this home is not your primary residence. Those details could void your coverage entirely if something were to happen. 

Premise Liability Insurance, offered by most of our competitors, covers incidents occurring on the short-term rental property itself. But it has its limitations as it doesn’t extend to off-premises incidents, such as accidents involving amenities like bicycles or watercraft provided by the vacation rental property or if a guest gets hurt/injured while exploring your community. This may be a surprise, but the short-term rental owner can be held liable for accidents that occur off of the property, we’ve seen it happen many times before. 

Commercial Liability Insurance is the best fit for short-term rentals and while more costly the additional coverage could save you a lot of money in the event of a claim. It not only covers on-premise incidents but also extends to off-premise situations, including accidents involving amenities and even assault and battery claims. Given its broad scope, it is considered the optimal choice for short-term rental properties.

Commercial General Liability is the coverage offered by Proper Insurance.

Deciphering Liability Coverage Limits and Exclusions 

Understanding the coverage limits and exclusions of your liability insurance is just as important as choosing the right type.

The coverage limit refers to the maximum amount your insurance provider will pay for a liability claim. For sufficient protection, Proper Insurance recommends a minimum coverage limit of $1million per occurrence. Your liability coverage limit would cover things like: 

• Carbon monoxide poisoning incident 
• A drowning in a backyard swimming pool 
• A slip and fall down a rugged rocky area behind a beach vacation home 

These things don’t happen every day, but when things go terribly wrong, you will want to have a minimum of $1M in coverage. So, if you have a covered loss and have a $1M coverage limit, and on top of that $250,000 in legal fees, we may provide a net payment of $1.25M even though the settlement was for $1M. To reiterate, legal defense cost is in addition to the coverage limit.  

Proper Insurance goes above and beyond here too by additionally including legal defense for our insured who experienced a covered loss.

Exclusions are specific incidents or situations not covered by an insurance policy. It’s important to note that a traditional policy, like a Homeowner or Landlord policy, may have exclusions that you wouldn’t want to see in your short-term rental insurance policy. Proper Insurance’s policy would respond to the following commonly excluded items found on most policies:

• Communicable diseases like hot tub rash. This can get expensive quickly. If your policy excludes communicable disease, you will have to pay out-of-pocket for attorney fees/legal defense, respond to summons and appear in court, and pay medical expenses for the guest. 
• Liquor liability is a very common exclusion. To our knowledge, all our competitors exclude this. This means that you would have no coverage for any property damage or bodily injury at a vacation rental as a result of a guest and alcohol. With Proper Insurance, you don’t have to worry if you want to leave a bottle of wine as a welcome gift for your guests or if an accidental alcohol stash is discovered by the next guest who has young, curious children. 
• Assault & battery is another common exclusion. The reason our competitors don’t want to include this is they simply don’t want to pay for the claims as they can be expensive and drawn out. This leaves the short-term rental owner to burden the cost.  
• Sexual molestation or abuse is also excluded on most of our competitor’s policies. However, very sadly, these things do happen at vacation rentals maybe because of a gathering or party, and when they do, everyone is getting sued, including the owner of the home. 
• Damage, theft and vandalism by guests: While many policies don’t cover damage, vandalism, or theft by guests, Proper Insurance includes this coverage as standard, protecting owners against these potential losses. 

Proper Insurance does not exclude the above items but instead responds to them, once again, making our policy the most comprehensive on the market.

The Unmatched Coverage by Proper Insurance: Bells and Whistles 

When the Proper Insurance policy was being crafted, we decided to go even further by adding unique endorsements and optional add-ons to bring an even more comprehensive policy to the market, further protecting short-term rental owners against the unique risks and specific challenges the industry presents. 

Included Endorsements 

Damage Caused by a Guest 

One of the standout endorsements in the Proper Insurance policy is coverage for damage caused by guests, whether it’s an accidental mishap or deliberate destruction, with no limit. This truly unmatched level of protection offers peace of mind when handing over the keys to your property to a guest, making it an essential feature for any vacation rental property owner. 

Nashville short-term rental host, Brady Mills, unfortunately found out the hard way of what happens when a policy has a “malicious acts” exclusion for a short-term rental. His guest had a raging party and caused $10,000 in damage to his property and $2,000-$3,000 in loss of business income. Mills had assumed that his policy would cover him in a situation like this, but he was wrong. He was left to pay out of pocket for all the expenses accrued because his insurance company didn’t step in to help cover the costs.

Backup of Sewers & Drains 

Another endorsement in the Proper Insurance policy is coverage for backups of sewers and drains. Whether it’s a minor overflow or a major backup disaster, this endorsement ensures that as a vacation rental property owner, you’re not saddled with the financial repercussions. 

A standard home insurance policy does not cover sewer or drain water backup, but the Proper Insurance policy includes this coverage with no sub-limit. These things do happen, especially at short-term rental properties, like this viral situation that happened to Erika Gemzer, who went from Airbnb Superhost to homeless and in massive debt after a guest left her property with extensive water damage from flushing baby wipes. Standard Home policies and Landlord policies typically have low limits at $1,000 for backups of sewers and drains, and sometimes, they are not covered at all unless you pay extra. 

Optional Add-ons 

In addition to our standard comprehensive policy, there are additional add-on coverages for bed bugs and fleas, squatters, ordinance and law, and equipment breakdown. While these additional coverages are low-cost add-ons with Proper, they provide an invaluable safety net in the face of unexpected incidents while short-term renting.

Upgrade Your Coverage Today to Proper Insurance

Consider Proper Insurance a major upgrade that fully replaces your traditional Homeowners or Landlord insurance policy with coverage specifically built for a short-term rental property.  

It may come with a higher price tag, but it carries significant value and protection for vacation rental property owners, and a smooth future claims process. By opting for comprehensive coverage, property owners can transfer the financial risks associated with property damage, liability claims, and lost rental income to us. 

Ultimately, the choice of coverage you want for your short-term rental depends on your risk tolerance and the potential financial impact you’re willing to shoulder. Weighing the potential risks and financial implications against the cost of the insurance premium will guide your decision. 

If greater peace of mind, comprehensive financial protection, and claims service confidence are what you seek for your short-term rental business, paying a higher premium for the special form coverage provided by Proper Insurance is absolutely worth it. 

Give us a call or get a quote today to further understand why Proper Insurance is the recommended comprehensive short-term rental insurance provider from short-term rental owners around the United States.