The Big Three: Understanding Insurance Options for Short-Term Vacation Rentals

Insurance Options for Property Owners

Insurance is a crucial component of managing a short-term vacation rental given the unique exposure to a variety of risks that comes along with the industry.

IIt may be helpful to think of insurance as the transfer of risk from you, the short-term rental owner, to the insurance company so that if/when something happens you aren’t on your own to shoulder the financial burdens. Risk is what still exists after you think you’ve thought of everything.

There are three types of insurance available to property owners:

Homeowners Insurance (HO-3) 

Homeowners Insurance is intended for primary, owner-occupied properties. It provides coverage for the building, personal property “contents”, loss of use, and personal liability.

Although it is still limited in scope, this could be an option for a short-term rental owner only if it is your primary residence (where you live and receive your mail). It’s recommended to add a home sharing endorsement to this type of policy but there are still major limitations in coverage.

It’s important to note that even with a home sharing endorsement, a Homeowners policy will not provide adequate protection, if any protection, when it comes to liability coverage; guest-caused damage, theft or vandalism; invasion of privacy; and back-up of sewerage and drains. This should not be an option if the portion of the home you are renting is separate from the main house, like an ADU, as there may be a business activity exclusion for other structures.

Homeowners policies may also have limitations to the number of days per year you can rent a property and/or the income you generate from the property. If you rent a space in your primary home frequently or have a detached ADU that you rent like a detached garage, you should consider a commercial insurance policy like the one offered by Proper Insurance.

Landlord Insurance (DP-3) 

Landlord insurance is intended for tenant-occupied properties. It covers the building, personal property/landlord furnishings “contents”, loss of rents, and premise liability. There is an option to add an STR enhancement to some Landlord policies but that still has its limitations and falls short in providing comprehensive coverage for short-term vacation rentals. 

Common insurance gaps we see in a DP-3 policy is that it only provides coverage for liability incidents on-premises, meaning things that take place on your property. So, if you have a waterfront property and the guest drowns while swimming in the lake, you’d have no coverage. If a guest slips and falls due to the ice on the street outside of your home, you’d have no coverage as it’s beyond your property line. Additionally, there is no coverage for: intentional damage, theft or vandalism caused by a guest; and common exclusions for liquor liability; and pet, animal and wildlife liability.  

There is also limited coverage for business income as a DP policy only provides “loss of rents” which is calculated based on all rentals in the area including long-term rentals. This means that if it’s your peak season, you’d receive drastically less than your actual revenue. This is a huge limitation if you rely on the business income your short-term rental property generates. Loss of rent is also typically capped at 12 months. 

If you frequently rent your property, you will want more specific coverage to the risks of a short-term rental like the comprehensive policy offered by Proper Insurance. 

Commercial Insurance (CP/CGL) 

Commercial insurance policies are designed for business purposes, offering protection for the building, business/personal property “contents”, loss of income, and commercial general liability. This type of insurance is more suited for short-term vacation rental properties as, after all, operating a short-term rental is a business.  

Proper Insurance sells a commercial policy for homeowners that addresses specific risks of short-term renting including guest caused damage, liability coverage on and off-premises, squatter protection, bed bug and flea protection, loss of business revenue, and more. Proper Insurance offers the best insurance policy on the market for short-term rentals with unmatched coverage. 

What is the Best Insurance for Short-Term Renting? 

Proper Insurance created a Commercial Homeowners policy tailored specifically for short-term vacation rental properties. Think of the Proper policy as Homeowners insurance, Landlord insurance, and Commercial insurance all combined into one.  

We provide comprehensive coverage for the specific risks of a short-term rental operation and commercial general liability. Our expert vacation rental underwriters can tailor a policy specific to the needs of your short-term rental property. Proper Insurance covers all property types, including homes, townhouses, condos, duplexes, cabins, cottages, and apartments and insured homes in all 50 states.

Upgrade Your Vacation Rental Insurance

Proper Insurance is the nation’s leading short-term vacation rental insurance provider, with the most comprehensive policy on the market. We protect homes in all 50 states with unmatched coverage for your property, revenue, and business liability, customized to include guest-caused theft/damage, liquor liability, amenity liability (bikes, kayaks, hot tub, etc.), bed bugs and fleas, squatters, and more. 

Give us a call at 888-631-6680 to receive a comprehensive coverage comparison, or submit a request for a 3-minute quote today.