Whether expanding your portfolio or adding a second home, vacation rental insurance should be part of your investment strategy. Your new vacation property needs financial protection if a storm damages the property or a guest gets hurt. Insurance protects you, your guests, and your property—win, win, win. Let’s go through the ins and outs of vacation rental insurance, including costs, types, and mistakes to avoid. 

What Is Vacation Rental Insurance Coverage?

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Vacation rental insurance is commercial property insurance specifically designed to cover vacation rental properties. A vacation rental property is a second home you own that you rent out regularly to other people. Renting can be done through a property management service or a platform like Airbnb.  

Think of vacation rental insurance coverage like a homeowner’s policy on steroids. Typical homeowner policies will not provide the liability coverage needed for a rental property. Likewise, there may be exclusions for first-party coverage if the insurance company learns that the property is regularly rented out. 

A standard vacation rental policy will have two areas of coverage:

  • First coverage: This policy protects your physical property from specific, named losses, similar to standard homeowner policies. These losses are usually weather-related (wind, lightning, hail), human-related (theft, vandalism), or a mixture of both (fire). 
  • Second coverage: Protects against liability. A liability loss is as straightforward as someone tripping, falling, and getting hurt on the sidewalk while walking past your home to a guest slipping and falling down the stairs and ending up in the hospital with a broken coccyx. The liability portion of your insurance will help with their bills while defending you against any type of legal action. 

You also might realize that vacancy matters to an insurance company. If a house is vacant for too long and you file a claim, the insurance company can claim they had no insurable interest in an unmonitored, empty property and not pay the claim. If your home is vacant for half the year, you will want to look into a vacation rental policy that either has a vacant home rider or can switch between a vacation rental policy and a vacant home policy.

Cost of Vacation Rental Insurance

The average cost of a vacation rental policy is about 20% more than a standard homeowners insurance policy. In 2022, the national median cost of homeowners insurance was $1,775. So, the average vacation rental insurance cost is $2,130. Of course, the price may fluctuate some. When it comes to determining the premium cost for insurance, insurers will take into account the standard data you can expect like:

  • Age of the home: The age of the home matters because it may have out-of-date wiring, making it more susceptible to a fire, or it may be built with harder-to-procure materials, making the cost of repairing it more expensive.
  • Size of the home: Typically, the bigger the square footage, the more expensive your premium will be.
  • Home location: The location is important, especially regarding the likelihood of a natural disaster. For example, according to the Insurance Information Institute, Florida has the most expensive homeowners premium, averaging over $2,400. There’s also a greater chance of a hurricane hitting Florida over Connecticut, where the average homeowner’s insurance is $1,600.
  • Cost: The past is the best indicator of future performance for insurance companies. If you’ve had a claim in the last 3 to 5 years, you can expect your premium to be higher.

Now, the provider will factor additional considerations into the premium for a vacation rental policy. 

  • How frequently do you rent the property out? Is it rented year-round, only during the summer, or only for six months? 
  • Do you use any sort of background service to verify your guests? 
  • Does your home have amenities like a pool, trampoline, or boat dock for guests? If so, the price will reflect these increased risks.
Mobile phone screen with questions to prepare an insurance quote.
Mobile insurance questionnaire (Source: Obie)

Obie is a digital broker specializing in landlord insurance and vacation rental insurance. Its comprehensive policies include an inflation guard to ensure your property isn’t uninsured. Get a quote online from Obie in minutes to start purchasing vacation rental insurance!

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Different Types of Vacation Rental Insurance

It might be helpful to think of vacation rental insurance as a category of insurance. The specific policy type you purchase ultimately depends on how you use your property. 

Homeowner’s Policy

A homeowners policy may be enough if this is your second home and you only rent it out sometimes. Importantly, you will need to check with your provider to make sure you can rent it and that there is coverage when it is rented out. Some carriers will let you add an endorsement (also known as short-term rental insurance)  to your homeowner’s policy for a limited rental time. If this is enough coverage and you’re happy with it, this is probably the easiest and cheapest option. 

Landlord Policy

If your vacation rental is rented out year-round or often enough that homeowner’s insurance isn’t sufficient, look into a landlord policy. A landlord policy contains extra liability coverage for the rental of the property. The property portion can cover your contents; if the home is unfurnished, it can be limited to just the building. 

There are some important considerations when deciding if a landlord policy is right for a vacation rental. 

  • Business interruption insurance: Most landlord policies do not contain business interruption insurance. If something happens and you cannot rent the property, no financial assistance will likely be available. 
  • Premise liability: Landlord liability is usually only premise liability. This means there would not be coverage if something happens to a guest off-site. For example, if your rental home has bicycles or kayaks for the guests to use and they get injured while using these items but are off-site, the landlord’s policy wouldn’t cover their injuries. 

And to muddy the waters, some insurance companies offer a business owner’s policy for vacation rental properties but call it a landlord policy. The bottom line is to discuss your property, business, and needs with the carrier to determine which policy is right for you. 

Business Owner’s Policy 

A business owner’s policy (BOP) combines multiple types of coverage, all bundled into one policy. These policies are commercial property, general liability, and business interruption insurance. There are three scenarios where this will either be your best policy for a vacation rental or required. 

First, if the insurance company determines your property is primarily a business, then you can expect to need this policy. Second, a BOP is the best option if it is rented out year-round and you want a higher liability limit and business interruption insurance. Third, you will want a BOP if you need more than premise liability.

If you’re considering getting into rental properties and becoming a landlord, ensure you are up to date on the market in your state. For example, did you know that some states are better suited for landlords than others? Learn more in our guide.

Benefits of Insurance for Investors

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Claims can come in many different forms. Some are commonplace like a wind storm damaging the roof of your new property or causing a tragedy. For example, this unfortunate accident:

Case Study: The Insurance Journal reports that over the summer of 2024, there was a tragic incident where a couple was electrocuted in a hot tub with faulty wiring. The husband died, and the wife was seriously injured. They have filed a suit against the property owner, alleging there was no signage warning about the dangers of the hot tub and that the staff didn’t respond quickly enough when the incident happened. 

This example was at a resort but highlights the many risks you can face when you own a vacation rental property. Something as seemingly innocuous as a hot tub can turn deadly and lead to a severe loss if your property does not have the right insurance.

Carrying vacation rental insurance has other benefits for the investor. It helps in your advertising to let clients know you are adequately insured. Many will require proof of insurance if you want to work with a platform like VRBO or a property management system. 

If you are looking for a loan, even if you need hard cash, being able to show you’ve got insurance on the property will make it easier to procure the loan. Indeed, most banks require you to insure the property if you take out a loan. 

Tips for Choosing Vacation Rental Insurance

Choosing insurance can feel overwhelming. Here are some tips to help simplify the process and keep you focused on your needs.

  • Make sure your policy has no exclusions for your business. For example, while a homeowners policy carries liability coverage, the limits are typically very low, and it will have an exclusion for business use. Renting your property is considered business use. 
  • Ask about the coverage provided. Specifically, find out what type of coverage is offered, the limits, and if there is an exclusion for vacant homes. 
  • Consider the cost of the investigation, defense, legal fees, and, if you are found negligent, settlement, and payouts. Some policies will offer $50,000 in liability limits or even $300,000. A liability limit of $1 million is not much more costly than $500,000, but it provides much better protection. 
  • Find out how the company handles its claims and response time for property losses. For example, when I started in the insurance industry I worked second shift on the weekends for commercial claim reporting. We didn’t get many calls but when a business owner had a major loss, like a fire, at 11 p.m. on a Friday having someone to speak with who could immediately get the process started was a major relief for them.

Stay informed during the quote process to ensure the policy you purchase fits how you want to use the property. 

FAQs

Bringing It All Together

When developing your investment strategy, don’t forget the insurance! It is one of the safest and smartest ways to do so. Vacation rental insurance just makes sense: it can help if your vacation home is damaged and will help guests if they get injured while using your property. Why let what-ifs and worries live rent-free in your head when you could purchase insurance and sleep peacefully?