The common risks associated with owning a rental property are protected by vacation rental insurance. This policy is similar to a homeowner’s policy: it provides coverage for the structure, contents, and liability, plus income loss protection. Vacation rental policies can range from $1,740 to $2,820 a year for a small, single-family home.
For a quick quote tailored to your specific property, consider Obie, a property insurance company that specializes in providing coverage for landlords and real estate investors. If your home is vacant or a vacation rental, Obie can help with short-term rental insurance too. In minutes, get a free quote online.
Insurance for vacation rentals differs from a typical homeowner’s policy. If you rent out your home multiple times a year, many standard homeowner carriers will consider this a business use. Therefore, your typical homeowner’s policy may not provide the coverage you need when renting out your property. In that case, consider shopping for a designated commercial policy to ensure you get the right coverage.
It is important to carry vacation rental insurance so you are not left financially exposed if something goes wrong on your property. Vacation rental insurance also comes with liability to protect you from risks you may face if your guests get hurt while staying in your home.
For example, let’s say a renter is sleeping on the top bunk in your vacation home. They roll over and fall out of bed, breaking a lamp and their arm during the fall. Rental insurance is the coverage that helps them with medical costs and protects you from liability.
The four primary areas of coverage provided by vacation rental insurance are:
- Liability: This covers personal injury to your renters, their guests, and anyone else on your property.
- Structure: This covers the building in the event of fire damage, theft, and over events.
- Contents: The items that are not a part of the building, such as furniture or electronics, require separate coverage.
- Lost income: If you cannot rent the property because of damage to it, then the policy will reimburse you for the lost income.
Vacation rental insurance is also different from vacant home insurance. A vacant home is one that you own but is currently unoccupied. Depending on the duration of the vacancy, consider vacant home insurance for the property.
Vacation Rental Insurance Costs
When determining the cost of rental insurance, property insurers will consider several factors, including:
- Replacement cost: Vacation rental property insurance costs vary significantly based on the replacement cost of the property. The more expensive the property is to rebuild, the more expensive it is to insure.
- Amenities: Does the home have a pool? Is it on the water with a dock? These amenities, while attractive to renters, will also drive up the cost of the premium.
- Rental frequency: If the home is your primary residence that you rent out a few times a year, then the cost will be less than if you rent it out regularly.
- Special events: If the home is in a scenic venue with lots of space, do people rent it out to host a wedding or party?
- Sleeping quarters: Does the home have bunk beds or a ladder to a loft to create more sleeping accommodations? These risk factors translate into a liability for the insurer and can impact the cost.
- Average rental term: Generally, short-term rentals have a higher premium than long-term rentals because more people will stay in the home over a specific period of time.
- Location: The property’s location, such as in Miami or Tucson, Arizona, impacts the premium because of the risk of natural disasters in that area.
What Type of Vacation Rental Policy Is Best?
Vacation rental insurance is best understood as an umbrella term with different policies nesting underneath it. What type of rental business you operate will determine what type of policy is right for you.
Depending on how often you rent your home, some major carriers offer a rider for short-term rental insurance. A rider adds coverage to your homeowner’s policy to provide coverage when your home has become a business because of being rented out. This type of policy may be the best option if you do not rent your home out very often. Before shopping for a vacation rental insurance policy, ask your agent if a rider is an option.
A landlord insurance policy is applicable to property you rent out to regular tenants. You should consider this coverage if you are renting out a room in your house, even if only for the weekend. It provides coverage for your property and liability for the guest’s protection if they stay on your property.
Some rental service provider vendors, such as Airbnb, offer insurance if you list with their platform. This is an example of service provider coverage because the coverage is available via the service provider. If you are listing your property through a provider, check to see if they provide insurance and, if so, what it covers. It may be sufficient and will save you from purchasing unnecessary insurance.
Many carriers offer homeshare insurance as a stand-alone policy. Homeshare insurance provides coverage when you rent your home regularly through a provider service, like Airbnb, Vrbo, or a similar vendor. If you have a job where you travel regularly and have decided to rent your home out to generate passive income while traveling, this policy is best for you.
This coverage isn’t purchased by the property owner but rather by the renter. It is also known as traveler’s insurance. If you are renting someone’s home and damage their personal property, the carrier will send you a bill for reimbursement after the policy pays for the damage.
If you rent your property out, this is coverage you may require tenants to purchase before occupying your property.
Getting Vacation Rental Insurance
It is important to have a plan when purchasing a vacation rental property. Likewise, when choosing a provider for vacation rental insurance, pick one that offers the best coverage for your needs, serves your geographic area, and has a competitive price. Sometimes, it is helpful to work with a broker or agent if you are unsure where to start.
Some providers generate an online quote, while others in the rental insurance space will require you to answer questions and then have an agent follow up with you. Most insurance companies can provide a conditional receipt immediately upon taking the application and payment. The application is submitted to an underwriter, who then confirms all data and finalizes the premium.
When getting rental property insurance quotes, be prepared to answer questions about the home you are insuring, such as:
- Age: What year was the home built?
- Square footage: How big is the home, and how many floors does it have?
- Construction materials: Is your home brick and mortar, or is it a wooden frame?
- Angle of the roof: Is it a pitched roof, gabled, or something else?
- Roofing material: Is your roof constructed primarily of metal, composite shingles, or something else?
- Amenities: Does your home have a pool or a trampoline?
- Rental frequency: Will your home be rented throughout the year or only a few times?
- Rental service provider: Will you use a vendor to list your rental property?
- Insurance policy: Is the home currently insured elsewhere?
- Security system: Does the home have a security system, such as surveillance cameras or alarms?
- Fire suppression system: Is there a fire suppression system or are there extinguishers?
While this list is not exhaustive, keeping the nature of the rental property and your goal in mind when determining what policy is right for you is essential. Are you renting your home when you occasionally travel for business, or have you invested significantly in your property to turn it into an event venue? When determining what coverage is best for your needs, ensure you disclose as much information as possible to the insurance carrier.
Frequently Asked Questions (FAQs)
No. Renting out your home is almost universally considered a business venture and is excluded from coverage under typical homeowner policies. Some homeowner insurance companies, however, do offer an endorsement that will provide coverage for short-term rentals. Check with your provider regarding options.
Airbnb, through its AirCover product, offers host liability insurance. This policy provides coverage for hosts who are found liable if a guest’s property is damaged or stolen or if a guest is injured. The policy is for $1 million in coverage and is included automatically when you list a property on its website. However, there are some fine-print exclusions and terms that influence coverage. For example, AirCover is unavailable for properties in Japan.
Vrbo adds a $1 million liability insurance policy automatically when you go through the online check-out system. The cost for the policy is built in, so there is no extra charge. This policy is only for liability—it covers third-party damage (a guest damages someone else’s property) or injury (a guest is injured while staying at your home).
Bottom Line
Renting your home can be an excellent way to earn passive income and an entryway to becoming a small business owner. Whether you own a second home or are thinking of buying a vacation rental property and renting it out for others to enjoy, consider this type of policy. People take a vacation to relax—and having the right insurance gives you and your guests peace of mind.
When you are renting out your home, you are putting your happy place into the hands of others. That’s why it’s essential to work with a provider who is covering everything that’s important to you. Obie is a niche property insurance provider specializing in landlord insurance and vacation rental properties. Get a free quote in minutes today.