Every business comes with a certain level of risk, and your vacation rental business is no different. If you own a rental property or planning to purchase a vacation rental property to allow strangers to stay there, then you’ll definitely need insurance. Vacation rental insurance protects you, your guests, and your property. It covers any unprecedented incidents or property damage. Although these types of occurrences tend to be pretty rare for vacation rental businesses, it’s always best to protect yourself just in case.
What Type of Insurance Do I Need?
In one survey, 10% of vacation rental owners stated they didn’t have any insurance at all. Meanwhile, 44% had a standard homeowners or landlord policy, and 46% had a special vacation rental policy. For vacation rental property owners, the best type of policy is a specialized one. This is because you need different coverage than what is provided with a personal insurance policy, like a homeowners or landlord policy.
For example, if you’re earning money from renting out your vacation property, then it’s considered a business activity. In most cases, this won’t be covered by a homeowners policy. Meanwhile, if you have an umbrella insurance policy or personal liability policy, those don’t usually apply to vacation rentals either.
Some of the most well-known insurance companies, like State Farm, Liberty Mutual, and Proper Insurance, offer these types of insurance policies. There are also many other options available to you. In many cases, vacation rental property owners go with alternative options. We’ll discuss a few of the most popular ones later in the article.
How Much Does Insurance for Vacation Rentals Cost?
It’s nearly impossible to offer an estimate or average for vacation rental insurance because so many factors are involved. Some of these factors are the location of your vacation rental property, the replacement cost, the value of the property, the amenities, the amount of coverage, and your deductible.
One thing that can be said for certain is that you’ll pay more for a vacation rental insurance policy than you typically would for a homeowners policy. This is due to the fact that your vacation rental property is vacant more frequently than the average home is. In addition, there’s a higher likelihood of vacation rental owners filing an insurance claim than homeowners.
What Does My Insurance Policy Need to Cover?
Most vacation rentals have three functions throughout the year. The first is vacation rental guest stays, and the second is vacation rental owner vacations. The final function consists of periods of being unoccupied in between stays. Your vacation rental insurance policy needs to cover all three of these.
So what exactly do you need to look for in your vacation rental insurance policy? The big three are property protection, liability coverage, and loss of income. A few other things to consider are coverage for theft, bed bug or other pest infestations, and extreme weather conditions or natural disasters.
Unfortunately, even though it’s not common for guests to deliberately cause damage to a vacation rental, accidents do happen. Property protection protects your property itself and everything in it. With property protection as part of your insurance policy, you won’t have to pay as much out of pocket in the case that something needs to be repaired or replaced altogether.
Liability coverage protects you in the case of guests having an accident of some sort or otherwise getting injured at your vacation rental property. If the guests file a lawsuit due to accident or injury, liability coverage is necessary to cover the legal fees.
Loss of Income
Consider what would happen if there was considerable damage to your vacation rental property and you were unable to let anyone stay there for a period of time. You’d lose out on a lot of income! Loss of income coverage is often overlooked, but it’s extremely important. When you have loss of income coverage, your insurance will cover your loss of income during periods of time when you’re unable to welcome guests to your vacation rental due to damage.
Do I Need Coverage for Flood and Earthquake Risk?
When it comes to flood risk, you might want to think about purchasing flood coverage even if your vacation rental property isn’t in a high-risk area. There are multiple causes of flooding, including hurricanes, melting snow, inadequate drainage, and storms. In fact, about one out of five flood insurance claims comes from an area that is considered to be at low or moderate risk of flooding.
Meanwhile, if your vacation rental property is in a designated flood zone, you’ll typically have to carry flood insurance to purchase the property in the first place. Flood insurance policy covers your vacation rental property and its contents.
What about earthquake coverage? In California, where there are more damage-causing earthquakes than in any other state, only one in ten homeowners has earthquake insurance. Earthquake insurance typically covers your property, its contents, and loss of use.
When considering whether or not you need earthquake coverage for your vacation rental property, think about the likelihood of earthquakes taking place in the area. You’ll also want to consider the probability of an earthquake causing damage to the property, as well as whether you’d be able to afford the repairs for your home out of pocket if damage did occur.
Options for Vacation Rental Insurance
Below, you’ll find several options to consider for your vacation rental insurance. Some are well-known insurance companies, while others are startups that specifically focus on providing coverage for vacation rental property owners.
Proper Insurance is one of the most commonly-used insurance companies for vacation rental owners. It is backed by Lloyd’s of London and endorsed by Vrbo. Proper Insurance’s policies cover apartments, cottages, cabins, duplexes, condos, townhouses, and vacation homes. They cover both commercial and personal use of your vacation rental. Proper Insurance has the ability to tailor a policy that is specific to your vacation rental property.
While some insurance companies require you to have a homeowners policy with them in order to add on a vacation rental policy, American Modern does not. This large insurer gets very few customer complaints and will design a policy that matches your particular needs. It also offers a few different bundling discounts.
Farmers Insurance has a policy that includes liability insurance and comprehensive property coverage. There’s also the option of adding more coverage for personal property, personal injury, lost payments, and other structures like pools, sheds, and garages. Quotes are available online, and it’s not necessary to already have homeowners insurance with the company in order to get a policy. Farmers Insurance also has an easy-to-use mobile app.
What makes Progressive stand out amongst other options for vacation rental insurance is that you can turn your coverage on and off as needed. This can be especially convenient for vacation rental property owners that don’t rent out their property year-round. You can also bundle your policy with other Progressive insurance products, and the company has a convenient mobile app.
InsureStays is a licensed insurance agency that focuses on the needs of vacation rental owners, as well as property management and corporate housing markets. It partners with various professionals to develop insurance programs that fulfill the specific needs of vacation rental owners. InsureStays has custom insurance that includes trip cancellation, lodging protection, rental damage protection, liability, renters insurance, and corporate damage protection.
Velocity is a company that recently expanded to start covering short-term rentals. It specializes in coastal insurance, mainly covering properties that are located in areas where exposure to natural disasters is more frequent. If you have vacation rental properties in coastal US markets, then Velocity may be an option for you. Velocity covers incidents like fire, lightning, wind damage, hurricane, earthquake, liability, and theft. Its most commonly covered losses include fire and smoke, freezing of plumbing, water damage, windstorm or hail, falling objects, and theft.
- It’s important to insure your vacation rental property in order to protect yourself, your guests, and your property.
- Homeowners insurance and landlord insurance typically do not provide the specific coverage you need as a vacation rental property owner.
- It’s best to choose a specialized policy that includes property protection, liability coverage, and loss of income coverage. You may also want to consider adding coverage for theft, bed bug or other pest infestations, and extreme weather conditions or natural disasters.
- A few options for vacation rental insurance are Proper Insurance, American Modern, Farmers Insurance, Progressive, InsureStays, and Velocity. Proper Insurance, American Modern, Farmers Insurance, and Progressive are large and well-known insurance providers. Meanwhile, InsureStays and Velocity are smaller companies that cater specifically to vacation rental property owners and their needs.