Insurance for Short-Term Rentals: What to Know

When managing a short-term rental, having insurance coverage is important to protect your investment. Homeowners insurance typically does not cover rental activities, making a specialized short-term rental policy essential. This insurance for short-term rentals usually includes property damage and liability coverage tailored for rental properties.

If you want to add real estate investments to your portfolio, a financial advisor can help you analyze and manage them.

Types of Insurance to Get for a Short-Term Rental

Unlike traditional homeowner’s insurance, which typically does not cover rental activities, specialized insurance coverage is designed to address the specific risks associated with short-term rentals. Some types of insurance for short-term rentals you may consider include:

• Short-term rental insurance: This specialized policy provides comprehensive coverage tailored for properties rented out on a short-term basis. It usually includes property damage protection, liability coverage and tenant theft and home burglary.
• Liability insurance : Liability insurance is crucial as it protects you against claims from guests who may get injured on your property. This coverage can help with legal fees and medical expenses, ensuring that you are not financially burdened by such incidents.
• Property damage insurance: While short-term rental insurance includes property damage, having additional property damage insurance ensures that you are covered for any damages caused by guests. This can include anything from broken furniture to more significant structural damage.
• Loss of income insurance: This type of insurance is vital if your property becomes uninhabitable due to a covered peril, such as fire or flood. Loss of income insurance compensates you for the rental income you would have earned during the downtime, helping you maintain your cash flow.
• Platform-specific coverage: Many short-term rental platforms like Airbnb and VRBO offer their own insurance options, often providing additional protection for hosts. However, it's important not to rely solely on these platform-provided coverages, as they might have limitations and exclusions that could leave you vulnerable.
• Homeowner’s insurance with endorsement: In some cases, you can add a short-term rental endorsement to your existing homeowner’s policy. This endorsement can extend your coverage to include rental activities, though it might not be as comprehensive as a dedicated short-term rental insurance policy.

How to Get Insurance for Short-Term Rentals

Specialized insurance is required to ensure comprehensive coverage. To get short-term rental insurance, you’ll generally need to go through the following steps:

1. Assess your insurance needs. Start by evaluating the specific needs of your short-term rental property. Consider factors such as the property’s location, the typical rental duration and the amenities you offer. These details will help you determine the types and levels of coverage required.
2. Research insurance providers. Look for insurance companies that offer policies tailored for short-term rentals . Not all insurers provide this specialized coverage, so it’s essential to find those with experience in this market. Read reviews, ask for recommendations from other property owners and compare policy features to ensure you select a reputable provider.
3. Get quotes and compare policies. Once you have identified potential insurance providers, request quotes from multiple companies. Comparing quotes is crucial to finding a policy that offers the best value for your coverage needs. Pay attention to details such as coverage limits, exclusions and deductibles to ensure you understand what each policy entails.
4. Apply for coverage. After selecting an insurance provider, you’ll need to complete an application process. This typically involves providing detailed information about your property, including its address, size and features. You may also need to disclose your rental history and any previous claims. Accurate and thorough information helps the insurer assess the risk and offer appropriate coverage.
5. Meet qualification criteria. To qualify for short-term rental insurance, your property must meet certain criteria set by the insurer. This might include having safety features such as smoke detectors, fire extinguishers and secure locks. Additionally, some insurers may require that you adhere to local regulations and obtain necessary permits for operating a short-term rental.
6. Review and purchase the policy. Once your application is approved, carefully review the policy terms before finalizing the purchase. Ensure that all of the coverage aspects you need are included and that you understand the policy’s conditions. Purchasing the policy and keeping a copy of it readily accessible will ensure you have proof of coverage when needed.

Insurance Cost for Short-Term Rentals

Overall, the cost of insuring a short-term rental property can vary significantly based on individual circumstances and coverage choices. Several factors influence the price, including the location of the property, its size and the types of coverage you select.

Here’s a breakdown of the potential costs for different types of insurance you may need for a short-term rental:

• Cost of short-term rental insurance: Short-term rental insurance is designed specifically for properties rented out on platforms like Airbnb and VRBO. The cost for this type of insurance typically ranges from $600 to $2,000 per year. The premium varies based on factors such as the property’s location, the number of rental nights and the coverage limits chosen.
• Cost of liability insurance: Liability insurance is essential to protect against claims from guests who may be injured on your property. The cost for liability insurance can range from $200 to $500 annually, depending on the level of coverage purchase. Higher liability limits will increase the premium, but this coverage is critical in protecting against significant financial losses due to lawsuits.
• Cost of property damage insurance: Property damage insurance covers repairs or replacements needed if your property is damaged by a guest. The annual premium for this insurance ranges from $300 to $1,000. This cost depends on the extent of the coverage and the deductible you choose. Comprehensive policies with lower deductibles will be on the higher end of the price range.
• Cost of loss of income insurance: Loss of income insurance, which compensates for lost rental income if your property becomes uninhabitable due to a covered event, typically costs between $100 and $300 per year. This type of coverage ensures you continue to receive income even if your property is temporarily out of service, providing financial stability during repairs.
• Cost of platform-specific coverage: Platforms like Airbnb and VRBO often offer their own insurance options, which can provide additional coverage. These policies might be included in the platform fees or offered as an add-on. Costs vary widely, but they generally range from $50 to $200 annually, depending on the level of coverage provided.

Risks of Not Having Insurance for Landlords

Operating a short-term rental property without adequate insurance exposes landlords to significant financial and legal risks. The potential costs associated with these risks can far exceed the premiums paid for comprehensive insurance coverage, making it essential for landlords to understand the importance of protecting their investments. Specifically, here are six general risks to consider before foregoing insurance for short-term rentals:

• Financial loss from property damage: One of the most immediate risks is the financial burden of repairing property damage caused by guests. Without insurance, landlords must cover these costs out of pocket, which can be substantial. From minor repairs to major structural damage, expenses can quickly add up, jeopardizing the profitability of the rental.
• Liability for guest injuries: If a guest is injured on the property, the landlord could be held liable for medical expenses, legal fees and damages. Liability claims can be particularly costly, with settlements potentially reaching tens of thousands of dollars or more. Without liability insurance, landlords must bear these costs themselves, which could result in significant financial hardship.
• Loss of rental income: In the event of a disaster that renders the property uninhabitable, such as a fire or flood, landlords without loss of income insurance face the risk of losing rental income during the repair period. This can disrupt cash flow and make it difficult to cover mortgage payments and other expenses, leading to financial instability.
• Legal and regulatory penalties: Operating a rental property without adequate insurance can also lead to legal and regulatory issues. Some jurisdictions require landlords to have certain types of insurance, and failure to comply can result in fines and other penalties. Additionally, lawsuits from guests can lead to prolonged legal battles, further increasing financial strain.
• Reputational damage: Inadequate insurance can also harm a landlord’s reputation. Guests who experience issues due to lack of coverage may leave negative reviews, making it harder to attract future renters. A poor reputation can decrease occupancy rates and overall profitability.
• Lack of peace of mind and security: Finally, not having insurance can lead to significant stress and worry. Knowing that your property and financial well-being are protected provides peace of mind, allowing landlords to focus on providing a positive experience for their guests. Without this security, the constant risk of potential disasters can be overwhelming.

Bottom Line

Getting insurance coverage for your short-term rental is essential to protect your property and your financial stability. From specialized short-term rental policies to liability, property damage and loss of income insurance, each type plays a crucial role in mitigating risks associated with renting out your property. Additionally, considering platform-specific coverage and ensuring you meet all qualification criteria can provide further peace of mind.

Tips for Real Estate Investments

• A financial advisor can help you build a real estate portfolio. Finding a financial advisor doesn't have to be hard. SmartAsset's free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you're ready to find an advisor who can help you achieve your financial goals, get started now .
• Real estate not only can help you diversify your portfolio, but it can also create a long-term stream of income. Here's a beginner's guide with more information to help you get started .

Photo credit: ©iStock/Jacob Wackerhausen, ©iStock/skynesher, ©iStock/valentinrussanov

The post Insurance for Short-Term Rentals: What to Know appeared first on SmartReads by SmartAsset .