Short-term rentals have taken over the market in the last decade. Many travelers have opted for this accommodation as it offers a feel-at-home vibe at a lower cost than a hotel room and often more amenities.
Online accommodation marketplaces alone have properties listed in the millions. For instance, Airbnb currently has over 5 million listings worldwide.
The short-term rental market presents an opportunity for property owners to make money, whether you are managing a portfolio of vacation homes or are a homeowner with an extra room looking to make some extra cash on the side.
The catch, however, is that your basic homeowner's or landlord's insurance policy is not enough in this case. In fact, insurers consider converting your property into a rental (short-term rentals included) a potentially risky endeavor. That's where getting damage insurance protection comes in handy.
Here's the ultimate guide to damage protection insurance for short-term rental property and why it's crucial.
What Is Damage Protection Insurance for Short-Term Rental Property?
Damage insurance protection is an insurance policy made specifically for landlords renting part of a home or their entire property on a short-term basis. However, it only applies to short-term paying renters. If you offer free accommodation to friends, relatives, and loved ones, your homeowner's insurance policy is still applicable.
Coverage for short-term rental property is usually added as a rider or endorsement to your existing homeowners' policy. Some insurance companies, though, might provide damage insurance protection as a policy on its own.
In addition, some policies or endorsements allow you to have coverage for only the periods your short-term rental is occupied. This, ultimately, reduces the cost of your insurance. It is important to consider the available option with your agent or insurer before purchasing the policy.
What Does Damage Protection Insurance Cover?
The damage protection coverage kicks in where your standard homeowners' and landlords’ insurance policies do not apply due to a property’s short-term rental status. It provides coverage for different events, mainly focusing on fixing or replacing damages and theft hosts suffer from unruly guests. In addition, many providers may also cover:
Loss of income
Excessive use of utilities
However, it's important to remember that insurance coverage for short-term rental property does not cover damages to the property from normal wear and tear.
Do You Need Damage Protection Insurance for an Airbnb?
Absolutely. Airbnb has introduced more stringent measures to help hosts weed out bad guests and protect the host’s property better, one of which is that guests must be above 18 years of age. They must also upload valid identification showing their legal names and address. The information is then cross-checked with available public records when making reservations.
Second, you could use the security deposit strategy, where either Airbnb or the host requires guests to have a security deposit for their stay. Although asking for a deposit could potentially limit your Airbnb business compared to other hosts who don’t require it, collecting a deposit ensures you have funds available to pay for damages caused by the guest.
Some landlords with short-term rentals take additional measures to combat property damage. This may include installing security cameras and noise monitors, and requiring additional personal information to verify the guest's information.
Although these extra efforts are a good first step, they may fall short if a guest causes significant damage. For example, consider the cost of replacing destroyed furnishings in an entertainment unit or repairing a trashed property. Some hosts have had the misfortune of this and much more, from guests leaving them with stained carpets and beddings to broken furniture pieces and utensils.
It is always better to be safe than sorry. That's why investing in damage insurance protection for your short-term rental property is more important than relying on Airbnb. Filing a claim with Airbnb can be lengthy, requiring you to put your rental business on hold. Also, you may not get all of your claimed amount, as was the case for this host.
Damage protection insurance ensures you have the proper protection against damages surpassing Airbnb's limits. Following up on a claim with your insurance carrier can also be easier compared to dealing with Airbnb.
Tips for Getting the Most Out of Insurance for Short-Term Rental Property
With the ever-changing landscape of the short-term rental market, it can be difficult to know what kind of insurance you need. Here are a few tips to help you get the most out of your landlord insurance policy:
Talk to your provider beforehand
If you already have an existing policy, contact your insurance provider before you begin accepting reservations. The high turnover of guests associated with short-term rental property increases your risk.
Keeping your insurer in the loop right from the start allows them to customize your coverage to meet your needs. It also removes the element of surprise during the claim process, which could result in a claim being denied.
It is hard to get a claim through without proof of damage. Regardless of how much your insurance premium is, there is always a risk an insurer will not cover or only partially cover damages that guests might cause without proper proof.
That's why it is paramount to document everything, from the moment your guests arrive to when they depart. This will help you get the reimbursement you deserve from your insurance company. Here are some best practices for documenting an insurance claim:
Take photos or videos of the damage. Be sure to document the date and time that the damage occurred.
Get a written statement from the tenant detailing what happened.
Contact your insurance company as soon as possible to report the claim.
Keep all receipts for repairs or replacements related to the damage.
Follow up with your insurance company until the claim is resolved.
Choose the right insurance provider
Most carriers cover contents damage, excessive use of utilities, loss of income, and liquor liability. But there is more to lose when it comes to personal liability charges and the destruction of your entire property's structure. Yes, it happens.
Some Airbnbs have gone up in flames due to a negligent guest, leaving property owners with damages in the millions and little coverage to recoup the loss.
Fortunately, you can protect your short-term rental against destructive guests. Some short-term rental insurance providers will provide you with a comprehensive policy that includes personal liability and property structure coverage. A provider that offers these, albeit at a higher cost, allows you to make the most out of this coverage if and when the need arises.
Beware of loss of income specifics
It's important to be aware of what your loss of income coverage includes in the event that your short-term rental property is uninhabitable. This type of coverage typically includes lost rent and rental income, as well as any related expenses like alternate housing costs for tenants.
Be sure to read your policy's fine print to see what is covered and what isn't. For instance, some policies may not cover lost rent if the property is uninhabitable due to a natural disaster. Others may only cover lost rent for a certain number of days or weeks.
It's also important to remember that most policies have a deductible, the amount you'll have to pay out of pocket before the insurance company starts covering expenses.
How Do I Get Damage Protection Insurance for Short-Term Rental Property?
There are a few different options for landlords to obtain damage protection insurance for their short-term rental properties.
One option is to purchase an insurance policy through a traditional brick-and-mortar insurance company. Another option is to go through an online insurance broker like Obie, which uses cutting-edge technology to improve the process of shopping for insurance specifically used as investment properties (like short-term rentals).
Why have landlords insured more than $4 Billion in property with Obie?
When you purchase an insurance policy through a traditional brick-and-mortar insurance company, you usually have to go through a lengthy and complicated process. First, you have to find an insurance agent who represents the company. Then, you have to schedule an appointment with the agent and go through a time-consuming process of filling out paperwork. Finally, you have to wait for the agent to find the right policy for you, which can take a surprisingly long time.
In contrast, Obie makes this process much simpler and faster. With Obie, you can get quotes from multiple insurance companies in just a few seconds, and you don’t have to deal with any paperwork or appointments. Plus, Obie’s technology makes it easy to compare different policies side-by-side to find the best one for your needs.
So if you’re looking for an easier and faster way to get damage protection insurance for your vacation or short-term rental property, go with Obie.
Get an instant quote from Obie today by visiting the website and entering the address of your short-term rental property. You can get started here.