What Insurance Do You Need for Different Short-Term Rental Situations?
The insurance you need for a short-term rental depends on how your property is used, how often it’s rented, and the level of risk you’re willing to carry. While some hosts rely on Homeowners endorsements or Landlord policies, these options often come with limitations that can leave critical coverage gaps. For short-term rental scenarios—especially those with frequent bookings or higher exposure—a specialized Commercial policy offers the most consistent and comprehensive protection.
Below, we break down the most common short-term rental setups, so you can understand what coverage applies to your specific situation and where potential risks may exist.
Navigating Short-Term Rental Scenarios & Insurance Options
The answer to whether you need to change insurance if I rent my property short-term boils down to whether the property is a primary home or solely a vacation rental. Let’s explore traditional short-term rental scenarios so that we can explain your insurance options and outline coverage gaps to consider.
Primary Home + Short-Term Renting a Room
When it comes to short-term renting a room in your primary residence, the insurance implications can be quite complex. You’re not just a homeowner now; you’re also a landlord, just with many short-term lease agreements rather than one long-term agreement. This dual role of a room-sharing host can impact your coverage under a standard Homeowners insurance policy.
Coverage Gaps When Adding a Homesharing Endorsement to a Room
To address some of the liability gaps in a Homeowners policy, you can add what’s known as a “home sharing endorsement” to the policy. This enhancement expands the coverage to include some risks that are associated with short-term renting at your primary residence. While a home-sharing endorsement can provide some added protection for short-term rental hosts, it’s important to be aware of its limitations. Typically, these endorsements have limitations on the number of days per year you can rent out your property and/or the amount of income you are able to generate. If you exceed the set limits for days or income, your insurance coverage could be completely void.
Additionally, a homesharing endorsement may not cover scenarios such as vandalism or theft by a guest since you entrusted your property to them by allowing the guest into your home. A home sharing endorsement also might not provide business income coverage, which could be vital if a covered loss makes your rental uninhabitable/unable to be rented and leads to a loss of rental income.
While a homesharing endorsement is better than no additional coverage at all, it is unlikely to provide the full protection needed for this type of short-term rental operation. Homesharing insurance endorsements are weak coverage at best.
Primary Home + Short-Term Renting an Accessory Dwelling Unit (ADU)
Renting out an Accessory Dwelling Unit (ADU), such as a guest house or a converted garage, on the same property as your primary home presents its own unique insurance challenges. The dual nature of your property—part primary residence, part rental property—necessitates careful consideration of your coverage.
Since this is your primary home, you likely already have a Homeowners (HO) insurance policy. However, given that the ADU is a separate structure, if you will be short-term renting, you may need to adapt your HO coverage to include it. This is where the concept of “Other Structures Protection” comes into play. It extends your HO coverage to other buildings on your property, such as your ADU.
Standard Homeowners coverage may not fully cover risks associated with short-term rentals in your ADU. For instance, if a paying guest who is staying in your ADU accidentally starts a fire, the damages may not be covered under a standard HO policy because the incident arose from a business activity—in this case, a short-term rental business.
Coverage Gaps with Homesharing Endorsements for an ADU
To address gaps between an HO policy, you can add a homesharing insurance endorsement to your Homeowners policy. This endorsement expands your coverage to include some risks associated with short-term rentals.
Not all insurance companies offer home-sharing endorsements for ADUs. In some cases, you may need to consider a Dwelling/Landlord Policy (DP) or a Commercial Policy (CP). The choice you have here ultimately depends on the extent of exposure and occupancy of your specific situation.
Primary Home + Renting the Entire Home
Turning your primary residence into a vacation rental when you’re away presents another unique scenario. Unlike the previous situations where your home still serves as your primary home, here, your entire home is rented out for short periods. This changes the nature of the risks involved and, therefore, the insurance coverage you need.
In this case, since your primary residence is also being used for business activity — i.e., short-term rentals while you’re away from the home — your standard Homeowners policy likely does not provide coverage. You will need to either add a homesharing endorsement to your Homeowners policy or better yet, upgrade to a Commercial policy that also covers your property as a primary home like the policy offered by Proper Insurance.
Coverage Risks When Adding a Homesharing Endorsement for Your Primary Home
If you’re occasionally renting out your home an endorsement or enhancement (also known as a rider) to your existing Homeowners policy might suffice but still has its limitations. This is often referred to as a home-sharing endorsement, which extends your coverage to include some risks associated with short-term rentals.
The home-share endorsements are meant for primary residence, not a second home that you sometimes/occasionally reside at. Some of these limitations commonly seen are only $2500 for coverage to “landlord furnishings,” limited coverage around loss of rents/business income, and little to no coverage around offered amenities.
Takeaways: Vacation Rental Insurance for Renting Out a Primary Home
If you’re renting out your entire home, then home-sharing endorsement on your Homeowners policy may suffice or even better, a Commercial policy like the one offered by Proper Insurance would be more suitable. The more frequently you short-term rent your property, the more suitable a Commercial policy becomes.
In most cases, the special form Commercial policy, like the one offered by Proper Insurance, is recommended for properties being used as short-term rentals. Proper Insurance offers the most comprehensive coverage, covering virtually all perils (risks) unless they’re specifically excluded. This policy also includes commercial liability coverage, which extends beyond your property line and covers incidents that may occur as a result of your short-term rental business operations and includes custom coverages to address unique challenges like bed bugs, squatters, liquor liability, and more.
Second Home or Short-Term Rental Investment Property
When you’re renting out your second home or an investment property as a vacation rental, your insurance options are quite different from those for your primary residence. This is because your investment home is used for business purposes – i.e., short-term rentals – and does not serve as your primary home, the place you live and receive your mail. Therefore, your options are a Dwelling/Landlord policy or a Commercial policy.
Occasionally Short-Term Renting
If your second home or Airbnb investment property is occasionally rented out, a Dwelling/Landlord policy with a short-term rental enhancement might be sufficient if you’re able to accept its limitations. Remember that with a Dwelling/Landlord policy, you only get premises liability, which limits coverage to incidents within your property line and provides limited coverage (if any) for damage, theft, or vandalism caused by guests.
Short-Term Renting Only During Peak Seasons
In some regions, we see people offer a property as a long-term rental in the off-season, a short-term rental in peak seasons, and having vacant periods during the shoulder months. This situation is all too common for property owners of second homes in travel destinations such as ski resort towns, summer lake towns, etc.
Where things become complicated in insurance language is how they cover a mix of occupancies throughout the policy period (short-term rental during peak season, with mid-term stays during shoulder seasons, and in many cases, a period of vacancy during off-season). This uncertainty around coverage during varying occupancy types can result in unforeseen reductions in coverage.
This is where the Proper Insurance policy shines, as our policy does not have occupancy restrictions, meaning many standard policies limit or void coverage due to change of use (short-term, mid-term, or long-term rentals or vacant periods), while ours does not.
Short-Term Renting Frequently
If your second home is frequently rented out, a Commercial policy like the one offered by Proper Insurance is best for this scenario. A Commercial policy with Special Risk Coverage covers virtually all risks unless they’re specifically excluded. A Commercial policy includes Commercial Liability Coverage, which extends beyond your property line and covers incidents that may occur as a result of your short-term rental business operation.
Short-Term Renting Multiple Properties
If you own and rent out multiple properties as vacation rentals, your insurance needs become more complex. Each property presents its own unique risks and considerations. For owners of multiple vacation rental properties, a Commercial policy like the one offered by Proper Insurance is the most appropriate choice. Proper Insurance’s policy was designed specifically for short-term rental properties and the risks they present.
The Proper vacation insurance policy has the most comprehensive coverage available on the market. It extends beyond your property line and covers incidents that may occur as a result of your short-term rental business operations, like if a guest were to get in a bicycle accident on a bike you provided or drown in the lake of your waterfront property.
Rental Arbitrage: Don’t Own the Property
Rental arbitrage goes by several different names (lease arbitrage, short-term rental arbitrage, Airbnb arbitrage, apartment arbitrage, re-rent, and more), but the concept is straightforward: an individual or entity rents a property long-term and then re-rents or sublets that property on a short-term basis on booking platforms like Airbnb or Vrbo.
With several parties involved (the re-renter, the landlord, and the guest) it’s important to be adequately insured. Proper Insurance provides the most comprehensive coverage available for rental arbitration.
What to Consider for Your Specific Short-Term Rental Insurance Needs
Getting the appropriate insurance for your short-term vacation rental situation requires careful consideration of various factors:
- Frequency: Are there limits to the days you can short-term rent? Do you want to meticulously keep track of the days you’re able to short-term rent in a calendar year so that your insurance policy doesn’t become void?
- Income: Are there limits to the amount of income you generate? Do you want to limit the income you generate by your short-term rental so your policy doesn’t become void?
- Specific Risks Involved: Are you a waterfront property? Do you provide amenities? Are you in a high-crime area? Do you want coverage if a guest drowns at your lakefront property? Do you want coverage if a guest falls off the bike you provided? Do you want coverage if a guest gets assaulted while walking in your community?
- Level of Coverage: Do you want the least amount of coverage available or the most? Do you want coverage for the items inside your home? Do you want liability coverage to extend beyond your property line? Do you want coverage if a guest burns down your neighbor’s house with a firework? Do you want coverage if a guest throws a massive party inside your home, resulting in damage to your furnishings, flooring, and walls?
- Cost: What are you willing to pay for the coverage you want? Remember, insurance premiums are based on risk, so a lower cost for insurance means less coverage.
Why Standard HO and DP Policies Aren’t Enough for Short-Term Rentals
Here are ways that a Homeowners or Landlord policy may fail to fully protect your short-term rental business, even with a short-term rental rider or endorsement:
Proper’s STR Insurance vs. Homeowners vs. Landlord (DP): The Best Insurance Policies for Vacation Rentals
| Coverage | Proper Insurance | Homeowners Insurance (HO) | HO + Home-Sharing Endorsement | Landlord Insurance (DP) |
PropertyProperty example: A natural disaster occurs like a tree falling on your home. |
Homeowners Insurance: Exclusion for business activity
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HO + Home-Sharing: If your Airbnb is not your primary home, your HO coverage with an endorsement is likely null and void.
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Damage, theft and vandalism by a guestDamage, theft and vandalism example: Guest throws a party and damages the contents of the home and structure |
Landlord Insurance: Covers theft and vandalism if NOT by your Airbnb guest (property entrustment). Limited contents coverage.
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Liability on premises Liability on premises example: Guest slips and falls exiting the shower at your rental. |
HO + Home-Sharing Endorsement: If your Airbnb is not your primary home where you live, your HO coverage, even with an endorsement, is likely null and void.
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Liability off premises Liability off premises example: Guest gets injured while off your property line (like at the beach of your waterfront rental or guest burns your neighbors house down/dog bite – someone gets hurt off property ties it back to you) |
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Replacement costs Replacement costs example: Roof damage from a covered cause of loss |
Proper Insurance: Pays pure replacement cost – the full amount needed to replace damaged item (new for old). No depreciation deducted.
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Homeowners Insurance: More often than not this would be responded to, however the business activity exclusion found in HO policies could result in no coverage.
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HO + Home-Sharing Endorsement: Typically, pays “actual cash value,” which includes depreciation. The insurer may pay you only $10,000. If this is not your primary home, you may receive $0.
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Landlord Insurance: Typically, pays “actual cash value,” which includes depreciation. The insurer may pay you only $10,000.
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Loss of income Loss of income example: A claim occurs at your property that takes your Airbnb out of business |
Proper Insurance: Provides a check for the actual revenue lost up to the limit of your choosing.
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HO + Home-Sharing Endorsement: Some endorsements may extend limited coverage to use “loss of use” as “loss of rents.” However, you may not have enough to cover additional living expenses and loss of income.
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Landlord Insurance: Provides a check for “loss of rents,” which is based on the average from your area, including long-term rentals.
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Liability for amenities Liability for amenities example: If a guest gets injured or worse from your provided bikes, kayaks, pool, hot tub, etc. |
Landlord Insurance: Only covers amenities that are confined to your property line.
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Vacancy Vacancy example: Damage occurs at the property during the shoulder season or period of vacancy |
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Invasion of privacy Invasion of privacy example: House cleaner accidentally walks in on a guest before they check out |
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Airbnb squatterAirbnb squatter example: A person rents your property for one week but overstays their checkout period by three months and is now protected by law as a tenant |
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Bed Bugs Bed Bugs example: Liability from bed bug bites and the cost to exterminate them |
Upgrade to Proper Insurance for Your Short-Term Rental Insurance Needs
Proper Insurance is a leader in the short-term vacation rental insurance market, having developed a specialty insurance policy that covers both business use and personal use of your property. Our agents at Proper Insurance are knowledgeable experts in the short-term rental industry and are happy to discuss your unique scenario and insurance needs. Please give us a call at 888-631-6680 or get a quote.
The Proper Insurance policy for vacation rental homes not only provides comprehensive protection against common exposures like liability, property damage, and loss of revenue, but it also includes enhancements tailored specifically for the needs of short-term rental owners, like coverage for bed bugs/fleas, squatters, and no sub-limit on guest-caused damage.
The best time to review your insurance policy is now. Don’t wait until an incident occurs to find out you’re not adequately covered. Reach out to Proper Insurance today for a complimentary coverage comparison.
