Property Management 8 mins read

Your Bulletproof Vacation Rental Insurance Guide [+ 5 tips]

By June 13, 2019 September 23rd, 2022 No Comments
Your guide to obtaining vacation rental insurance

Owning vacation rentals is a great way to earn income. But as with any investment they come with unique sets of risks. It’s important to be realistic about these risks and take steps to protect yourself. Vacation rental insurance is one way to protect your investment and ensure your home, belongings, and guests stay safe.

Points to consider when you research policies

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.

Remember that insurance companies will always try and upsell their most expensive policies. But excessive or unneeded coverage will end up costing you more in the long run. In competitive markets that means fewer profits.

What is covered with vacation rental insurance?

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, and how your rental income is guaranteed in case of serious damage.

Vacation rental insurance should cover these three things

#1: Liability

In an ideal world, your guests won’t get in accidents in your vacation rental. But if they were to, 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 liabilities that come 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 the liability stemming from 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 damages to your home and belongings. Vacation rental insurance alleviates 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.

Why platform policies aren’t enough

Vacation rental owners sometimes ask themselves if they really need additional insurance coverage. After all, doesn’t the vacation rental platform offer host protection guarantee? Isn’t that enough?

The short answer is no. Here’s why:

Major platforms like Airbnb and VRBO offer primary liability coverage. 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.

Is vacation rental insurance expensive?

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. There are three reasons:

  1. The home sits empty for extended periods of time. That means there’s an increased chance of damages when people aren’t around.
  2. Renters have different interests than a primary homeowner and just aren’t as careful as you would be. This involves a higher risk which translates to more expensive premiums.
  3. The policy covers property and lost income. That’s more risk to cover for the insurer.

Variables that affect the cost of short term rental insurance

There are four factors that determine the cost of your rental insurance plans:

Location, location, location

The location of your property will determine the value of the home, the amount per night you can charge, and how much your vacation rental insurance will be. In general, the more desirable the location, the more expensive the value of the insured property is. That also means higher earnings, which the insurance company has to plan for.

How often your property is rented

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.

The size of the 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.

Amenities of the property

Vacation homeowners often choose to add amenities to their home 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 Tips when considering vacation rental insurance

What to consider when looking for vacation rental insuranceBuying 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 damages to your property. As you search for the right policy, keep these five tips in mind:

Tip #1: Shop around until you’ve seen all the options out there

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: Don’t give up

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 for a few more years.

The takeaway

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. Do the research and find the best policy for your needs.