Insurance for short term rentals

13 Replies

I am brand new to real estate investing and was wondering what is the best way to go about insurance that will cover me and my assets for my short term rental through airbnb or Vrbo.  Thank you for any advice!

Tyler

Tyler this is a great question. Most folks new to STRs are unaware that a traditional homeowners policy doesn't work.  You need a commercial policy since you are basically running a hotel.  Ten years ago, the market of insurers for overnight rentals was very limited.  Now there are maybe ten players in the market.  I would go to CBIZ or Southpoint Risk.  I have never seen a competitive quote from Proper.  Foremost is an actual insurer.  You want to go to an agency that shops various insurers and finds the overall best deal.

You also want to make certain that your replacement amount is accurate.  Three years ago, I had a small cabin that burned to the ground in a forest fire and thought I had plenty of insurance - $210K - to cover the replacement.  The actual replacement cost:  $330K.  Not a good surprise.  It's better to pay a few dollars and over-insure, rather than save a few dollars and cut it too close.

Hi Tyler,

I would highly recommend that you KEEP you current homeowners' insurance. Its important to make sure your home is protected first. Then I would treat additional STR insurance as a second layer of protection. I currently use Proper Insurance for my assets however, I have heard good things about Safely, and a third option is Slice by Progressive for an inclusive insurance policy.

Originally posted by @Joshua Adegboye :

Hi Tyler,

I would highly recommend that you KEEP you current homeowners' insurance. Its important to make sure your home is protected first. Then I would treat additional STR insurance as a second layer of protection. I currently use Proper Insurance for my assets however, I have heard good things about Safely, and a third option is Slice by Progressive for an inclusive insurance policy.

This is poor advice. Homeowner's insurance is a completely different animal than STR insurance. A short term rental is a commercial enterprise. Therefore, you need commercial insurance. Insurance that not only covers the dwelling, but lost income, enhanced liability protection, and more. Buying traditional homeowners insurance on a short term rental is money wasted. If you've got extra dollars to throw around stacking policies, get a commercial policy with every bell and whistle.

Originally posted by @Collin H. :
Originally posted by @Joshua Adegboye:

Hi Tyler,

I would highly recommend that you KEEP you current homeowners' insurance. Its important to make sure your home is protected first. Then I would treat additional STR insurance as a second layer of protection. I currently use Proper Insurance for my assets however, I have heard good things about Safely, and a third option is Slice by Progressive for an inclusive insurance policy.

This is poor advice. Homeowner's insurance is a completely different animal than STR insurance. A short term rental is a commercial enterprise. Therefore, you need commercial insurance. Insurance that not only covers the dwelling, but lost income, enhanced liability protection, and more. Buying traditional homeowners insurance on a short term rental is money wasted. If you've got extra dollars to throw around stacking policies, get a commercial policy with every bell and whistle.

 I concur!

Tyler,

First, if you are not living there, a Homeowners policy would normally not be the correct policy regardless of the STR. You would need a Dwelling Fire Policy (some companies call it a Landlord Policy). Some of those policies will allow for short term rental but with strict limitations. Some have a minimum number of days and others have maximum number of weeks rented. If you can not find one that you qualify for, as Collin H mentioned, you will need to look for a commercial policy.

If you choose to follow Joshua's advise (not recommeded) and keep your existing policy and add coverage for the STR with a second policy be very careful. Just having the STR operation could cause your current policy to cancel you. If you had the STR and did not disclose it when you purchased the policy they could deny a claim.

I would seek out several Independent agents that write both Commercial and Personal Insurance in that state. Get quotes for coverage that includes the STR. Good luck

Josh is actually 100% correct. This falls into how to properly structure your STR business. If you run an STR business you should actually be doing it from a completely separate entity than that of the homeowner.

Ex: I own a home and I put a home owners insurance policy on the home. That covers me. I then lease that home to my short term rental company on a corporate lease so that company pays me rent every month. My short term rental company then covers themselves by putting a short term rental policy on the home through proper, CBIZ, etc.

Now let’s look at the benefits of doing this. If anything ever happens to the property myself as the landlord is covered, the short term rental policy adds an additional layer which is completely separate from me, and if a reservation comes in from Airbnb I now have a 3rd layer of protection.

So yes keep your homeowners insurance and structure your business correctly.

Myka,

If your company allows it thats great.  I pulled the following from the underwriting manual of one of our companies?

     • Rental properties must be rented on leases with minimum terms of 1 week.

     • Properties used for business purposes, other than approved home daycares, are ineligible for coverage.

If an owner were with that Insurance company the Business Purposes could give them issues for the corporate lease and if they did a direct rental for the STR you could have an issue. There are companies that would endorse the policy for STR. For anyone doing the STR I would advise making sure there are no issues with the policies (get it in writing).

@John Mocker 100% agree put it in writing. That's why you have to have your business structure created first and then get the policy. There's a lot of confusion on business structure in the STR space. I also see you're in the Gatlinburg market which is considered a VR market so the business structure is completely different. One policy might suffice but I haven't dabbled in VR markets on the buyers side as of yet.

@Collin H. Tyler mentioned that he was brand new to real estate. We would need better context as to how he acquired his properties. Did he purchase it originally with the intent to live or rent long term? or was it exclusively STR from the beginning. Depending on how his assets were acquired would determine the level of complexity needed for insurance.

@Tyler Fox

I think it’s great to ask for “opinions” as to what others do, but remember that we are all individuals owning STRs and just stating what we do …although it may not even be right.

I would strongly recommend to do what I did and that's call an actual insurance agent and tell them what you're trying to do. They are the experts. You can even get referrals for agents in your area that work with STR owners.

Everything else is just someone’s suggestion.

(I use foremost)