May 15, 2022


Do You Need Short-Term Rental Insurance?

After years of procrastinating, you’re finally going to backpack through South America. Better yet—you found Ajay, a newcomer to the city who has agreed to lease your home for the six weeks you’re gone. Now, not only are you getting to explore everything from the Amazon Rainforest to the Andes Mountains, but someone's paying you rent to supplement your trip!

Sounds perfect, right?

Well, it was until you returned home and discovered your safe was broken into, and your $4,000 worth of living room furniture is now completely destroyed. Also, Ajay is gone without a trace. 

To make things even worse, your standard homeowners insurance policy might not cover this. You were profiting from the arrangement, so they consider it a business venture. 

That’s where short-term rental insurance comes in handy. If guests are going to stay on your property for a short time period, and they’re paying you rent, I strongly suggest you get short-term rental coverage.

In this post, I will answer:

  • What does short-term rental insurance cover?
  • Who uses short-term rental insurance?
  • How popular are short-term rentals?
  • Is short-term rental insurance coverage mandatory?
  • Why isn’t a homeowners policy enough?
  • How much does short-term rental insurance cost?
  • Who sells short-term rental insurance?

Let’s get started with this post.

What Does Short-Term Rental Insurance Cover?

Short-term rental insurance covers any property damages and protects you from liability exposure involving your short-term guests. It’s considered specialty coverage or endorsements that add onto your existing homeowner’s insurance policy. It protects you and your renters, and the personal belongings each of you has, from potential damage. 

Here’s what most short-term rental policies cover:

  • Property damage - This includes any damage done to any of your insured properties or to the structures of any of your insured properties in the event of vandalism, water damage, etc. 
  • Your belongings - This includes any damage done to your personal items or the theft of your personal belongings stored on the property your renters inhabit.
  • Liability - This includes coverage for any legal costs you have if a renter sues you for getting injured or for their property damage while staying at your property.
  • Excessive utility bills - If, for example, your guests left the shower running for hours at a time, your policy will likely cover it.

Often, short-term rental policies also cover identity theft and any infestations that your guests could have caused.

Who Needs Short-Term Rental Coverage?

You only need short-term rental insurance if you’re going to have paying guests staying on your property. If you have family or friends staying temporarily for free, most homeowner’s insurance policies will cover them. 

These insurance policies only apply if you’re renting out your property for a short time period. This period is usually two months or less, but the length of time depends on what your insurance company considers “short term.”

If you’re planning to rent a property for several months at a time, you'll need a different type of policy, such as rental dwelling coverage or landlord insurance. 

If you’re looking to turn your property into an AirBnB or vacation rental by the owner (VRbO), things get a little tricky. Your property is then considered a business. Before short-term rentals became hugely popular, you would need commercial insurance, such as hotel insurance, to cover your property. However, several insurance companies have created hybrid plans in recent years to better meet the needs of these homeowners. More on that later.

How Popular Are Short-Term Rentals?

How Popular Are Short-Term Rentals?

Short-term rentals have exploded in popularity in recent years. Companies like AirBnB are helping homeowners realize that they can monetize their properties by renting out rooms or their entire homes for short time periods. Many travelers find them a great alternative to hotels, which can sometimes be expensive—especially when you have to purchase multiple hotel rooms. 

What started as a niche concept for family reunions and traveling groups of friends is projected to be a $20 billion industry by 2026.

Here are a few more vacation rental statistics to think about:

  • In 2021, roughly one in eight people were vacation rental guests. By 2025, that number is likely to be one in five.
  • On average, around 200 guests check into an AirBnB every minute.
  • Chalets, cabin rentals, and properties in rural destinations are experiencing the largest surges in popularity. Two main reasons include a desire to visit the great outdoors, and to get out of the city for a bit.

The vacation rental industry took a hit in 2020, but it wasn’t nearly as impacted as the hotel industry. At the end of March 2020, global hotel occupancy saw a 77% decrease in rooms, dropping from 77% to 17%. Vacation rental occupancy saw a 45% decrease, dropping from 66.3% to 36.4%. Vacation rentals with two or more bedrooms saw a 46% decrease, dropping from 60.6% to 32.6%.

Since then, the vacation rental industry has picked up again. It increased by 22.4% in 2021, and is forecast to grow an additional 14.1% in 2022.

Why Are Vacation Rentals So Popular?

Why Are Vacation Rentals So Popular?

There are multiple reasons why vacation rentals are popular right now.

Vacation Rental Property Flexibility

Vacation rental properties are as unique as the people looking for them. 

Are you looking for vacation space that comfortably fits ten? No problem! Do you want to stay in a treehouse for the weekend? You can do that, too! Want to plan a last-minute getaway on a beachfront property somewhere? Spend the night in a haunted house? Sleep in a lighthouse? You get the picture.

Work Flexibility

In 2019, only a small percentage of Americans worked part- or full-time from home. In 2022, 62% of U.S. employees between 22-65 say they work remotely, at least occasionally, and most companies are adapting hybrid work models.

Traveling used to be something that many U.S. workers did one or two weeks a year. Now, many of us need little more than a laptop and a good WiFi connection. If you had to choose between working at home or logging on by the ocean, why wouldn’t you escape every now and then?

They Are Lucrative

Vacation rental owners can make a pretty penny by renting out their properties when they’re not using them. The average price for a single or 2-person rental for a population destination is $186 per night, or $1,302 per week. Larger properties can rake in a lot more!

Is Short-Term Rental Insurance Coverage Mandatory?

Short-term rental policies aren’t required, but strongly recommended. 

Short-term rentals are now considered the second biggest liability exposure (driving a car remains #1), with “slip and falls” being the most common liability claim at vacation rentals. If one of your guests injures themselves on your poorly-lit back porch, or if your hand railings aren’t as secure as they should be, you could be sued for:

  • Medical expenses incurred during their hospital stay
  • Lost wages
  • Physical therapy
  • Pain and suffering

These costs add up quickly. Without a policy, you could find yourself selling your investments, your rental property, or even go bankrupt.

Debunking Vacation Rental Properties  “Guaranteed Insurance”

Many people with vacation rental properties or who rent their homes out often don’t even think about short-term rental policies. They assume it’s covered in their homeowner’s insurance or their landlord policy (it's not). 

If it’s not covered in either policy, there are also programs like AirBnb’s Host Guarantee Insurance, which implies you are 100% covered. Unfortunately, that’s not the case. Host Guarantees have multiple coverage gaps.

To the naked eye, you might believe that AirBnb’s $1 million Host Guarantee will provide you with insurance coverage of up to $1 million worth of liability and damages caused by your guests. While it covers specific liability claims and damages to your property, here’s what’s not covered:

  • Liability coverage - Host Guarantee doesn’t extend to equipment usage outside your property. If your guest gets hurt while using your kayak, or gets in an accident using your bike, you could be liable. 
  • Amenities - Any damage to your amenities, including your bike, kayak, canoe, golf cart, scooter, etc., is usually not covered in a Host Guarantee.
  • Vacant Rental/Lost rental income - Host Guarantee does not cover loss of income. If something happens to your vacation rental property that makes it unusable for six months, you won’t receive income for those months. You’ll need different coverage for that.
  • Liquor liability - If your guests consume alcohol on your property—which is likely since they’re on vacation—your Host Guarantee doesn’t extend to this type of liability coverage. You’ll need separate coverage or additional coverage to minimize your risk. I also strongly recommend against selling liquor to your guests. Many types of liability coverage will not protect you if something happens. 

Short-term rental coverage will fill most of these gaps, depending on what policy you choose.

Why Isn’t Homeowners Policy Enough?

Why Isn’t Homeowners Policy Enough?

Homeowners insurance usually doesn’t cover short-term rentals. Many homeowners insurance policies have a termination of coverage clause that can go into effect if your home becomes a rental property. This is largely because homeowners insurance companies view short-term rentals as a business venture. 

You will need extra insurance coverage to ensure protection. I recommend asking an independent insurance agent to find the right coverage to protect yourself and your property before you decide to rent it out. 

How Much Does Short-Term Rental Insurance Cost?

The cost of short-term rental insurance policies varies based on many factors, including:

  • Your personal insurance history
  • The size of your property or vacation home
  • The age of your property or vacation home
  • How long you need coverage
  • Crime rate in your area

In 2021, the average cost of home insurance was $1,735. Coverage for short-term rental properties is usually less, since your guests are there for just a short time period.

Who Sells Short-Term Rental Insurance?

There are many homeowners insurance companies in the short-term rental market that offer great deals. Here are some of the best ones:

Proper Insurance

Proper Insurance is widely considered to have the best short-term rental policies. They have specific, affordable, and comprehensive coverage for vacation rentals in all 50 states. 

Here’s just some of what Proper Insurance covers:

  • Theft and vandalism
  • Damages caused by a guest
  • Liquor and pet liability coverage
  • Bed bugs
  • Actual loss sustained business income
  • Replacement cost valuations
  • $1,000,000 in commercial liability
  • Special cause of loss for the building and your personal property
  • Amenities

Proper Insurance identified the huge trend of short-term rentals and began offering personalized coverage to best meet the needs of short-term vacation rentals.

If you also live on the property, the cost of Proper Insurance coverage will increase. Also, they don’t provide on-demand coverage.


Allstate’s Host Advantage makes adding short-term rental coverage to your existing homeowner policies easy and affordable. They offer policy bundling and other discounts, have a vast network of available agents, and make it easy to file claims. 

One main con with Allstate is that they only sell short-term insurance in six-month terms, so you will have to revisit your policy twice a year.


Nationwide has the broadest range of short-term rental policy options. Many of these can be specified to meet your needs. They can also offer you coverage beyond your home, to include stolen property regarding your home’s amenities. However, because of their vast number of policies, they tend to be more expensive than other options.

Farmers Insurance

Farmers Insurance has prepackaged landlord insurance policies that include comprehensive property coverage and liability coverage. They also have optional coverage additions, including:

  • Lost rents
  • Personal injury
  • Personal property
  • Coverage for additional structures, including garages, sheds, and pools

Farmers Insurance is available in all 50 states, and your deductibles decrease over time if no claims are made. 

Speak with an insurance agent before selecting a policy. Some types of coverage are only available in specific packages.

Proper Insurance

Other Notable Insurance Companies

Final Thoughts On Short Term Insurance Policies

Short-term insurance policies can save you a lot of stress and heartache. You can’t rely on “Host Guarantees” or your homeowners insurance for total liability coverage. By selecting the right short-term policy for your situation, you can avoid unnecessary costs for damaged or stolen property, loss of rental revenue, and other types of damage caused by your guests.

About the Author

As a native Washingtonian, Carlos Reyes’ journey in the real estate industry began more than 15 years ago when he started an online real estate company. Since then, he’s helped more than 700 individuals and families as a real estate broker achieve their real estate goals across Virginia, Maryland and Washington, DC.

Carlos now helps real estate agents grow their business by teaching business fundamentals, execution, and leadership.

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