Want to Own an Airbnb? Here's What You Need to Know About Homeowners Insurance

More than 5 million hosts list properties on Airbnb, and there's a good reason why. In 2023 alone, Airbnb generated more than $73 billion in booking value for the accommodations listed on its platform.

Short-term rental properties can be a great way to invest in real estate and potentially have a vacation home for you and your family at the same time. But it's important to know that your standard homeowners insurance is likely not sufficient all by itself. As an owner of an Airbnb rental myself, here are three important things you need to know about insuring a short-term rental property.

Make sure your insurance company knows about it

I don't mean to be repetitive, but this headline is worth emphasizing. Make sure that if you are using a property as a short-term rental, your homeowners insurance company knows about it. If it doesn't, you could be opening yourself up to a world of liability that you don't want.

One consideration is that standard homeowners insurance typically doesn't cover damage during periods where your home is unoccupied. The main reason why it's usually more expensive to insure a vacation rental than a primary residence is that it sits vacant more often, and therefore there is a higher probability that you'll end up filing a claim (for example, a small house fire can more easily become a big fire if nobody is in the house).

Second home insurance policies are available, and these generally provide the same coverage as standard homeowners insurance. If you rent out your property (via Airbnb or otherwise), you might need a specific endorsement covering short-term rentals.

Airbnb offers some coverage

Airbnb offers its AirCover insurance to protect hosts from damage. As of the latest information, AirCover provides up to $1 million in liability coverage and $3 million in damage protection. AirCover also offers professional deep cleaning reimbursement, and you can submit claims for reimbursement in many cases if a guest steals something from your home.

A couple of caveats. First, this coverage applies only if you list on Airbnb. If you also plan to list your rental on other platforms, be sure to check what sort of coverage (if any) applies. Some rivals offer significantly lower coverage and exclude issues like pet damage. Second, AirCover is a good insurance program for hosts, but it might not cover everything. It's important to compare what AirCover will protect you from with a homeowners policy plus a short-term rental endorsement.

Protection beyond your homeowners policy is smart

The standard homeowners insurance advice you'll hear from financial professionals is "don't skimp on coverage." But I'd go a step beyond that and suggest an umbrella policy if you're an Airbnb owner, just to make sure you're protected if something truly unfortunate happens.

One thing I do, and that could be a smart idea for anyone who owns rental properties or has a lot of assets to protect, is to get an umbrella policy. In short, umbrella insurance provides protection when the limits of your homeowners, auto insurance, and other insurance policies aren't enough to cover a loss.

For example, let's say that you own a vacation rental and your liability limit is $500,000. Something happens while the property is rented and three people are significantly injured and are suing you for $1 million. Umbrella insurance would protect you in a situation like this.

Umbrella policies are usually relatively inexpensive, because they only pay out after your other insurance is exhausted. Policies are typically issued in multiples of $1 million (I have a $2 million umbrella policy, for context). And it could provide you with the peace of mind that you're covered if the worst happens.

Make sure you are protected

The bottom line is that the standard homeowners policy is by no means sufficient if you own a vacation rental. At the very least, you'll need a short-term rental endorsement that will likely make your homeowners insurance more expensive due to the risks of vacancy, and it could be a smart idea to add an umbrella policy as well.