Do I Need to Change Insurance If I Short-Term Rent My Home?
One of the first questions for emerging Airbnb hosts is “Do I need to change my insurance if I short-term rent my property?” Yes—in most cases, you need to change your insurance if you’re renting your home short-term.
This guide breaks down how short-term rentals affect your insurance coverage and what type of vacation rental insurance you may need based on how you use your property. Our goal is to ensure you have the right coverage.
For a deeper breakdown of short-term rental insurance needs by property type, see our guide to short-term rental insurance by scenario.
Understand Short-Term Rental Insurance Basics
The purpose of insurance is to reduce the transfer of risk. It’s a safeguard against the unknown; a protective measure to ensure that in the event of an incident, you’re not shouldering the financial burden alone.
Short-term rentals can add risk beyond standard homeownership. These risks include liability if a guest gets injured, damages to your property or its contents, loss of rental revenue due to unexpected events like bed bugs, water damage, and more.
How to Tell If You Need to Change Your Insurance for a Short-Term Rental
So, how do you actually know if you need to change your insurance? It comes down to how your property is classified. Insurers use different policy types depending on whether a property is used as a personal residence, a rental, or a business. Understanding these distinctions makes it much easier to see when a standard Homeowners policy is no longer enough—and where you may need to adjust your coverage.
Breaking Down Property Insurance into the “Rule of Three”
To make sense of insurance for short-term rental properties, we’ll use what’s called “The Rule of Three,” a principle that simplifies property insurance options into three primary categories based on the home’s occupancy and exposure.
We break down the “Rule of Three,” a simple framework that explains how insurers evaluate risk and why most standard policies fall short once you start hosting paying guests.
The Three Types of Insurance for Properties:
Homeowner’s Policy (HO):
Traditional Homeowners policies are designed for primary residences. These policies assume personal use only and typically do not extend coverage to business activities, meaning that HO policies don’t cover Airbnbs.
Dwelling or Landlord Policy (DP):
DP policies are meant for landlords of rental properties with long-term tenants. These policies may provide premises liability and basic property coverage, but often include limitations when applied to STR activity.
Commercial General Liability (CGL)
Commercial insurance policies are designed for commercial properties and businesses. These policies are structured to cover higher liability exposure, guest-related risks, and business operations.
So, What’s the Best Type of Property Insurance for Vacation Rentals?
Since HO policies exclude business activity, and Landlord policies don’t offer the robust coverage needed, Airbnb and short-term rental hosts should choose a Commercial Homeowners policy that blends the need of HO-level protection with robust liability, revenue, and property damage coverage.
The Three Coverage Types for Insurance
In addition to policy type, property insurance coverage is also defined by the level of protection selected within the policy—commonly referred to as coverage “form”.
Basic: Provides coverage for 11 perils
This is the most limited level of coverage.. A named-perils policy, Basic form covers only the specific risks listed in the policy; this leaves coverage gaps for guest damage, liability, and lost revenue.
Broad: Provides coverage for 16 perils
This offers the insured a little more coverage, but still only covers what is explicitly listed—meaning anything not named is excluded, leaving liability, damage, and income coverage gaps for STR hosts.
Special: Covers all risks unless excluded
Also known as “open-perils” coverage, this provides the broadest protection by covering all risks unless they are marked as excluded in the policy, greatly expanding coverage for the insured.
So, What’s the Best Insurance Form For Airbnb Hosts?
Of the options above, a Special form Commercial Homeowners insurance is the best for short-term rental hosts, due to the unpredictable nature of guest-related incidents.
The Different Types of Liability Insurance
There are three primary types of liability coverage, each responding to a different type of risk exposure:
Personal Liability Coverage
Personal liability coverage protects the insured against lawsuits related to bodily injury or property damage caused by the owner or their family members. This coverage follows the insured wherever they go but is restricted to personal acts.
Example: Hurting someone’s toe with a shopping cart
Premise
Liability Coverage
Premise liability coverage protects the insured against lawsuits related to bodily injury or property damage that occurs on the insured’s property. This is common in Landlord policies, but may be limited when applied to guest-related claims.
Example: Elderly guest falls off a deck due to a loose handrail
Commercial Liability Coverage (CGL)
CGL protects the insured against lawsuits related to business operations and lawsuits related to any on-premises amenities or amenities that take guests off-premises. This covers liability from short-term rental activity.
Example: A neighbor’s dog bites a guest while on a walk
So, What’s the Best Type of Liability Coverage for Short-Term Rental Hosts?
This typically includes guest-related injuries (a dog bites a guest while they are on a walk), claims tied to provided amenities, and risks that extend beyond the property itself. Commercial Liability Insurance is the most comprehensive liability coverage for short-term rental hosts, and paired with personal and premise liability coverages, can help offer hosts the robust protection they need for their business.
Why Standard Homeowners and Landlord Policies Fall Short for Short-Term Rentals
As we’ve outlined, traditional Homeowners policies are designed to cover personal residences, and Dwelling/Landlord policies are designed to cover long-term rentals. When a property is used for short-term rentals, it straddles the line between a personal residence and a commercial operation, introducing massive coverage gaps for the insured.
Standard insurance policies were never intended to cover the range of risks associated with the business of a vacation rental, as well as the risks associated with the property, and do not provide coverage for things like bed bug or flea infestations, squatter protection, liquor liability, and pet & animal liability. Even if you add a short-term rental endorsement, also known as a rider, there are still key areas where these policies fall short.
Here are some areas 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:
Limited Business Activity Coverage
Standard policies typically exclude or limit coverage for business activities. Short-term rentals are considered a business activity; any damages or liabilities from it may not be covered. In fact, since this is a contractual exclusion, by operating a business at your home anytime during the policy year, you are directly violating this contract and therefore give your carrier the right to deny any claim.
Insufficient Liability Coverage
While most policies cover slips and falls, many situations are often excluded. Liability coverage in a standard Homeowners or Landlord policy may not cover many of the risks associated with short-term renting. This means that the policy would not respond at all, leaving you to carry the burden of legal fees and settlement costs. It’s important to make sure these risks are not excluded from your policy’s liability coverage.
Inadequate Liability Limits
Your policy may have an insufficient limit of insurance (the most you will be paid by the insurer in the event of a covered cause). This means that even if the situation is covered by your policy, your limit of insurance still may not be high enough to address the financial burden that the lawsuit brings.
Lack of Income Protection
Most standard insurance policies don’t offer coverage for lost short-term rental income or brokers confuse this coverage with loss of rents or loss of use. If your property were damaged and couldn’t be rented out while repairs were made, you could lose significant rental income.
Exclusions for Damage, Theft or Vandalism by Guests
Standard insurance policies often exclude guest-caused theft, vandalism, and intentional or malicious damage because of “property entrustment.” When you hand your keys to a guest, you are inviting them into your home and entrusting them with your property, so any theft or damage the guest causes is your responsibility since you handed them the keys.
Lack of Coverage for Special Amenities
If your rental property includes special amenities like bikes or hot tubs for guest use, these may not be covered under a standard policy. Additionally, coverage is usually limited to your property line, meaning if a guest gets injured while using an amenity you provided, you may be responsible for the cost to make them whole (think: hospital bills, lawyer fees, settlement costs, etc.).
Proper Insurance is the only option for short-term rental owners that is a one-size-fits-all solution. Proper Insurance offers a unique Commercial Homeowners policy written on a Special Risk Form — meaning you have the maximum protection available on the market for your short-term rental property, business, and liability.
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. 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. Proper Insurance agents are knowledgeable experts in the short-term rental industry and are happy to discuss your unique scenario and insurance needs.
