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Insuring Your Success: The Essentials of Coverage for Short-Term Rental Owners and Managers

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It’s not the flashiest of topics, nor does it command a  standing-room-only reference at a VRMA conference.  In fact, it probably wasn’t mentioned at all at the recent Short Term Rental Wealth Summit.  But it is vital to the success of a rental business and not paying sufficient attention to it can be the downfall no-one wants to happen.

From liability protection to damage waivers and business interruption to travel cover, insurance in this industry acts as a shield against potential risks and liabilities.  These are the safeguards of your properties and business.

And missing out on any of the crucial elements of insurance can have devastating effects.

Why Regular Homeowners Policies Fall Short for Short-Term Rentals

 Typical homeowners' policies are designed for primary residences, not for properties rented out on a short-term basis. If you were to use such a policy for a second residence intended for short-term rentals it could void the entire contract. 

It is essential to have a policy that explicitly covers second homes used for generating revenue.


The Importance of Opting for More Comprehensive Coverage

It’s tempting to go for reduced cover to keep costs down, but if you really think about it, Insurance is essentially about transferring risk. 

Cheaper policies mean more risk retained by the owner, whereas pricier options offer broader coverage, thus transferring more risk to the insurance carrier. Given the higher risk associated with rental properties, it's crucial to choose coverage that aligns with the specific needs and risks of your rental business, even if it comes at a higher premium.

Understanding Loss of Rents vs. Loss of Business Income Coverage

When researching insurance you’ll want to make sure you are covered for situations where you are unable to rent - for example, a wildfire evacuation.  Keep in mind the distinction between ‘loss of rents’ and ‘loss of business income coverages’. 

‘Loss of rents’ is tailored for long-term rentals and pays out based on the fair market value, capped at 12 months. 

In contrast, ‘loss of business income coverage’ is designed for short-term rentals and pays out based on the actual income generated by the business, offering a more accurate and fair compensation following a catastrophic event.

Coverage for Amenities and Off-Property Use

A good insurance company will  recognize the unique offerings of each rental property, including amenities like bikes, boats, and hot tubs. If you are going to include these make sure the policy you buy extends liability coverage beyond the property line, ensuring owners are protected even when amenities are used elsewhere. 

This is a more comprehensive approach that covers various scenarios, from animal and pet liability to risks associated with spa equipment.

The Need for Bedbug and Flea Coverage

Bedbug infestations are a real and present danger.  They are carried into your property on luggage, guest clothes and even library books - and yes, people still bring library books on vacation.  Look for coverage that includes liability for bites, extermination costs, and lost business income. although don’t expect it to replace damaged linens or furniture. 

Damage Waivers

Offering damage waiver products is another area to consider. 

These waivers act as a deductible saver for property owners, covering costs related to damages caused by guests during their stay. By offering these products, you can not only protect yourself from out-of-pocket expenses but also enhance the guest experience by streamlining the booking process and minimizing hassles.

No more collecting damage deposits and returning them after the stay, and that is a huge bonus in itself.

Travel Insurance

We’ve probably all wanted to say to a guest - ‘if you had bought travel insurance when you booked, you would be able to recover your money, and we wouldn’t be having this discussion about cancellation policies’.  

It always a difficult conversation to have.

You can avoid this by being super clear on your website what travel insurance is for and why your guests need it

For property managers it can mitigate risks associated with last-minute cancellations, ensuring a smoother booking process for both guests and hosts. 

Embracing these insurance components forms a robust risk management strategy for property managers and owners in the dynamic world of short-term rentals, paving the way for a secure and successful business venture.

Heather Bayer

Co-Founder & Director of Education & Training

Vacation Rental Formula
Short-term rental investor, blogger, podcaster, and vacation rental guru! Heather has been immersed in the industry since 1998 as the owner of seven properties and CEO of one of Ontario's leading rental agencies managing 180 rental cottages. She's also the co-founder of the Vacation Rental Formula, the best educational resource for owners and managers, and the creator and lead presenter for this incredible program.

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