How to Properly Insure Your Short-Term Rentals

For a lot of people, especially those who like to travel frequently, Airbnb, VRBO, and other home sharing platforms have taken over standard hotels. Homeowners have also found these platforms to be highly beneficial, especially now with rising interest rates causing mortgage payments to spike. It seems like one of the easiest ways to earn extra cash without making any serious sacrifices.

It also seems like a win-win for everyone involved. Travelers and students will have a relatively affordable place to stay, and homeowners can have an opportunity to earn some supplemental income. What’s the catch? Well, it’s just that your standard home insurance doesn’t cover commercial ventures, and odds are that because you are generating revenue, your provider will see your short-term rental situation as business activity.

There’s a lot of risks involved with short-term rentals, too. Rowdy guests, damaged property, neighbours bothered by the sound, injuries, and more. But if your insurance doesn’t cover home-sharing, then what’s the solution?

Here’s how to properly insure a short-term rental.

Why won’t standard home insurance cover short-term rentals?

Standard home insurance will generally not cover things like home-sharing/short-term rentals because they’re viewed as a business activity. To note, homeowners insurance does not cover business activities (save for, in some cases, maybe minor office supplies, work laptops, etc.) because of the risk that it poses. Say you worked as a massage therapist and worked out-of-home. You caused a client bodily injury, and they sued. That would not be covered by your standard home insurance. The same goes for short-term rentals. Property damage, liability – those will not be covered if they can be traced back to business activities, i.e. such as having tenants temporarily housed on your property.

To insure short-term rentals, you may need to acquire short-term rental insurance via a commercial tenant or landlord policy. We’ll get into that a little more below.

How do you insure a short-term rental property?

Due to the rise in home-sharing platforms and homeowners renting out their properties short-term, insurance companies have begun to offer coverage for short-term rentals via landlord or commercial tenant policies. In order to qualify for this coverage, however, the homeowner will need to prove that they are renting on a short-term basis and doing so occasionally.

These policies insure the homeowner for a specified kind of risk and will cost a little extra on top of an existing home insurance policy. In addition, the homeowner will need to inform their insurance provider about any changes of use to the rental property, which could require updates to the policy. As it stands, most home insurance companies will offer an endorsement for insuring occasional rental usage for an additional premium. This endorsement provides liability and property damage coverage while a person is renting. Note: never assume your standard insurance is enough without first checking.

How much does short-term rental insurance cost?

Short-term rentals are a great ROI, but to insure them may cost you an additional premium on top of your existing homeowners insurance. However, to go without insurance will leave you uncovered in the event of an unexpected loss, and if your tenants cause any property damage or bodily injury, the costs could rack into the tens or even hundreds of thousands!

Short-term rentals generate risk, hence the need for additional insurance – and additional cost. Short-term rental insurance may cost more depending on:

• How much and the duration of expected rental activity
• Condition of the rental property
• Total value of any contents in the rental property
• The homeowner’s insurance history
• The location of the rental property
• The rental property’s proximity to hazards – high crime rates, large bodies of water, etc.
• The type of rental property

The best way to secure an approximate estimate for short-term rental insurance is to get a quote. Ask an Excalibur Defender about the cost of short-term rental insurance to gauge what it may cost you to have your rental property covered.

What if I rent out my property more frequently?

If you rent out your property on a lease for a tenant that extends to six months and longer, short-term rental insurance may be insufficient in covering your property and liability. Short-term rentals are often defined as properties that are rented for 90 days or less (if even that – different insurance providers may have different definitions, so be sure to discuss with your provider about what they clarify as “short-term use” and “occasional renting!”) Landlord insurance may be the solution, as landlord insurance protects property owners from financial losses at their rental properties. It will not cover any of the tenant’s personal property or the tenant’s liability, but it will cover the actual physical dwelling, common areas, landscaping, and any furniture original to the property/unit.

Offering short-term rentals is a great way to earn supplementary income, but it can also come with risks. Not having the proper insurance coverage may mean that any losses which occur due to the rental usage of your property will go uncovered. As such, don’t be afraid to give your Excalibur Defender a call to discuss the difference between standard home insurance coverage and short-term rental coverage! We’re always happy to give you the information you need for greater peace-of-mind.