Avoid the STR Host Insurance Trap

Consider yourself lucky if you haven’t yet had to pull the rip cord and deploy the standard Airbnb insurance policy that’s included with all bookings. No one’s poured concrete down a drain yet? Hit you with a slip and fall lawsuit? Or burned down the woodshed in a rum-fueled inferno? If one of these or a million other possible outcomes take place at one of your vacation rentals, the last thing you want is to get caught holding the freebie Airbnb insurance alongside a regular old homeowners’ insurance policy. Once your insurer finds out you’re running a vacation rental business instead of living on the property, all bets are off. And you really can’t expect Airbnb to save the day either. Here’s why…

Vacation rental property owners are supposed to carry a business insurance policy instead. In fact, many insurers now offer policies expressly designed for operators of short term rentals. If you only rent out your home once a year, then you may be able to get away with a regular homeowners’ policy since your limited rental use will likely be considered incidental. That said, most Airbnb and VRBO hosts do much more annual volume, so you’ll need a different policy or, at a minimum, written confirmation from your insurer that regular short term rental activity is covered.

Airbnb & VRBO Insurance is Not Sufficient

The other option of course, which we don’t recommend, is to simply rely on Airbnb’s Host Protection Insurance or VRBO’s Liability Insurance. Both are automatic with each paid booking and both top out at $1M of coverage per occurrence. Airbnb’s insurance coverage is primary, meaning it kicks in before any other policy you may have, while VRBO’s is not and will respond concurrent with other policies. We generally view these platform policies as nice “bonus” coverage that might prove useful in some circumstances. But they’re absolutely not a replacement for regular homeowners’ insurance, and are not nearly as comprehensive as short term rental insurance policies from regular carriers.

Notably, Airbnb and VRBO’s policies specifically do not include reimbursement for lost earnings. Let’s say a guest manages to burn down the kitchen during his or her stay. You’re not only out the cost of the repairs, you’re not going to be able to rent the unit out for at least 6-8 weeks, perhaps much longer. In some circumstances, the lost income may even exceed the cost of putting in a new kitchen. Loss of income coverage is often included with short term rental business policies, but it’s not part of Airbnb or VRBO’s insurance programs.

Interestingly, neither Airbnb’s nor VRBO’s insurance programs cover damage to your unit caused by a paid guest. This is worth repeating. If a guest who booked through Airbnb trashes your unit, your recourse is to the separate Host Guarantee, not the Host Protection Airbnb Insurance. Likewise with VRBO, damage to your unit is only covered under the Property Damage Protection add-on, which you can require guests to purchase when booking, or a refundable damage deposit. Notably, VRBO’s Damage Protection coverage tops out at only $5,000 and only covers accidental damage. If the action is intentional, you’ll have to go after the guest on your own.

The key takeaway is that Airbnb and VRBO’s explicit insurance policies only cover liability claims for things like guest injuries on your property and/or damage to a third party’s property (like an HOA common area or a neighbor’s house). Damage to your property caused by a guest’s actions are specifically excluded from coverage, as is theft of valuables like art, antiques, and jewelry.

Best Airbnb Insurance Options

Fortunately, quite a few insurers now offer policies specifically designed for owners and operators of short term rental properties. Some policies will even completely replace your existing homeowners’ policy by pairing traditional fire, wind, and flood coverage with vacation rental business coverage on a single policy.

We recommend always getting at least two quotes, if not three. You’ll be surprised at how much annual premiums can vary across carriers for very similar coverage. Some insurers are just more competitive in certain geographies than others. Here are some good places to start:

  • Proper Insurance: Offered in all 50 states. Completely replaces all existing policies. Covers personal and business use.
  • Slice: Homesharing insurance you can turn on/off as needed. Priced nightly. Intended to supplement existing policies.
  • Traditional Carriers: AllState, Liberty Mutual, State Farm, etc. all now have add-on policies available for existing customers.

Traditional Landlord Insurance: What’s Included?

While it’s generally a bit more expensive than homeowners insurance, long-term rental property owners typically purchase landlord insurance to cover their investments and protect their assets. Landlord insurance generally includes building replacement coverage for losses from fire, wind, and other covered events, along with liability protection and income replacement. A brief primer on traditional landlord insurance might be helpful as it’s very closely related to the new short term rental policies now available.

Dwelling Replacement: If the structure burns to the ground or suffers severe damage during a storm, landlord insurance will cover the costs associated with rebuilding. This generally includes hard costs like materials and labor, along with soft costs like architectural fees and permits. Usually, your lender will tell you how much coverage you need or your insurer can recommend a standard amount per square foot based on local construction costs and the type and quality of the existing building.

Liability Protection: When a tenant or short term guest suffers an injury on your property, 99 times out of 100 it’s likely not your fault. But they’re going to find a way to claim it was your fault way more often than 1% of the time. Landlord insurance nearly always includes robust liability protection to cover your legal costs and any associated payments to settle tenant claims of landlord negligence, failures to repair, or other malfeasance.

Income Replacement: Most landlord policies include at least a modest amount of monthly income replacement coverage should you lose the ability to rent out the property as a result of a covered loss (fire, storm damage, etc.). It’s often not much in terms of actual income, but every bit helps when you’re facing months of downtime while you’re rebuilding.

Final Thoughts on Risk & Coverage

In our experience, it’s often best to secure an Airbnb insurance policy with coverages that closely match your own personal risk profile. Only you can decide how much and what types of coverage you need to sleep peacefully at night with the knowledge that you’re sufficiently protected should something go wrong at one of your short term rentals.

The tricky part is that you’ll want to read the policy docs in advance to understand what’s covered and what’s excluded. How else will you really know if the policy you’re selecting will mitigate your most significant perceived risks?

If your vacation rental is in a mountainous region out West, are structural (and income) losses covered in the event of wildfire? If your vacation rental property is in Hawaii or Florida, are you covered for canceled bookings and other potential losses due to hurricanes?

These are tough questions worth asking! In the end, the answers can mean the difference between an investment that bounces back quickly versus one that circles the proverbial drain.