How to insure a short-term rental property

A homeowners policy is written for a house occupied by the people named on it and their family, with an occasional guest who does not pay. The moment a stranger pays to sleep there, the property is being used for business, and the homeowners form has an exclusion for exactly that. Some carriers tolerate a few nights a year, some cancel on discovery, and nearly all will decline a claim that arises from a guest. The owner who lists a Sedona casita or a Park City condo on a booking platform and leaves the homeowners policy in place is running a business on a policy that does not know it exists.

The fix is not complicated but it does require choosing. There are three broad ways to insure a short-term rental, and which one is right depends on how often the property is let, whether you live there, and how much of the income you rely on. This guide walks through the choice, the lines to check on whatever policy results, the rules that Arizona, Nevada, Utah and Idaho cities add, and the ways a claim can still go wrong.

What to gather first

The quote depends on facts about the operation as much as about the house.

• The current policy on the property and its declarations page, so you know what is in force today and whether it has a home-sharing or rental endorsement already.
• How you host: whole-house or a room, nights let per year, whether you live there between bookings or it sits empty, longest gap between guests, and the platforms used.
• A furnished contents list with replacement costs; a short-term rental carries far more owner-supplied contents than a conventional rental.
• Gross rental income for the past year or the projection for the first, since lost income coverage is sized from it.
• The features that raise liability: pool, hot tub, fire pit, balconies, a dock, bicycles or kayaks supplied to guests, and any pets kept on site.
• The local permit or registration for short-term letting, the HOA rules, and any insurance clause in either.
• The mortgage lender's name, because a change of policy type has to be reported to escrow.

Step one: pick the policy type that matches how you host

If you live in the house and let a room or the whole place for a limited number of nights a year, many carriers offer a home-sharing endorsement on the homeowners policy. It removes the business exclusion for hosting through a platform, adds liability for guests and covers theft by or damage from guests, within limits and usually with a cap on nights. It is the least expensive route and the most restrictive; exceed the night cap or start letting while you live elsewhere and it no longer applies.

If the property is not your residence and is let regularly, the usual answer is a landlord policy written on a dwelling form, commonly a DP-3, with an endorsement permitting short-term occupancy. It covers the building, the owner's contents to a stated limit, liability as landlord, and fair rental value when a covered loss makes the property unlettable. Many landlord carriers will not accept short-term letting at all, so the endorsement must be explicit; a landlord policy that assumes annual tenants has its own occupancy conditions you would breach with nightly guests.

If the property is a serious business, let most of the year with several units or a high-value house, a specialist short-term rental policy written on a commercial basis fits better. It treats the operation as a hospitality business: guest liability, contents at replacement cost, business income rather than fair rental value, and coverage for the things a host actually faces, such as bedbug remediation, guest-caused damage above the deposit, and liquor liability if you provide a welcome bottle. It costs more and it asks more questions.

Step two: check the liability line

Guests are the exposure. They are unfamiliar with the stairs, the hot tub controls and the balcony rail; they bring children and friends who were not on the booking; they fall, burn themselves, and occasionally sue. Confirm the policy covers bodily injury to paying guests specifically, since a landlord form may cover tenants and a homeowners form covers social guests, and a short-term guest is neither in some wordings. Set the limit against what a serious injury would cost, and if you own other property or have income to shield, add an umbrella that lists the rental as an underlying location; an umbrella that was never told about the rental will not respond for it.

Pools and hot tubs are the features carriers ask about first, and in the Phoenix and Las Vegas markets they are nearly standard in a short-term rental. Expect fencing, cover and signage conditions, and expect a carrier to decline a diving board or a slide. Bicycles, kayaks, paddleboards and off-road vehicles supplied to guests are a separate question; some policies exclude injury from recreational equipment you provide, and the answer is either a specific endorsement or not supplying them.

Step three: check contents, income and the platform's protection

A furnished rental holds beds, linens, kitchens, televisions, patio sets and often art and games, and the default contents limit on a landlord form is set for a refrigerator and a stove. Add up the list and set the contents limit from it, at replacement cost. Guest theft and guest damage are usually covered subject to the deductible, and the deductible is the number to think about: a broken television or a stained sofa falls below it, and a policy is not the tool for those; the security deposit and the platform's damage process are.

Lost income is the line owners most often skip. When a pipe bursts in January and the house is out of service for three months, the mortgage, the utilities and the cleaning contract continue while the bookings do not. Fair rental value on a landlord form pays what the property would have earned; business income on a commercial form pays lost profit plus continuing expenses. Either should be sized from the actual booking calendar, and the period should be long enough to cover a real repair, which after a fire in a mountain town with few contractors can be the better part of a year.

The booking platforms offer host protection programmes. Read them as what they are: a contingent, conditioned promise by the platform, with exclusions, documentation demands and no duty to defend you in court. They are useful as a first resort for guest damage and as a backstop, and they are not insurance you own. No carrier accepts them as a reason to skip liability or contents coverage, and a lender will not accept one as evidence of insurance.

Step four: check the local rules and the gaps between guests

Cities in all four states regulate short-term letting, and the rules touch insurance in two ways. Several require a permit or registration and name a liability figure the host has to carry; Arizona cities have been especially active, and the required limit in a given city should be confirmed against its ordinance, since it changes and differs from place to place. Others require a local contact and a posted notice; neither is insurance, but a carrier may ask to see the permit. An HOA can forbid short-term letting outright, and a policy written on the understanding that letting is permitted does not fix a covenant violation.

The other local issue is occupancy. Property that sits empty between bookings is not vacant in the policy sense as long as it is furnished and ready for guests, but a seasonal property closed for the winter in McCall or Brian Head can cross into the vacancy condition on many forms, which reduces or removes coverage for vandalism, freezing and water damage after a stated number of days. Ask what the vacancy period on the policy is and what maintaining heat, water shut-off and periodic inspection does to it.

Common mistakes

The claims that are denied on short-term rentals almost always trace to one of these.

• Leaving the homeowners policy in place and hoping the carrier never finds the listing. It does, usually from the claim itself.
• Buying a landlord policy without a short-term occupancy endorsement, and breaching its occupancy conditions with the first guest.
• Treating the platform's host programme as the liability policy.
• Leaving the contents limit at the landlord default while furnishing the house for guests.
• Not adding the rental to the umbrella policy.
• Supplying kayaks, bikes or a hot tub without checking whether injury from them is excluded.
• Closing the house for the season and letting it cross into the vacancy condition without telling the carrier.

A worked example

Suppose an owner in St. George buys a second home to let year-round through two platforms, and expects $48,000 of gross bookings. She insures it on a DP-3 with a short-term rental endorsement: dwelling at $400,000, owner's contents raised from the default to $40,000 at replacement cost, liability at the limit the city's permit requires, and fair rental value at $48,000 for twelve months, with a $2,500 deductible. Say the annual premium comes to $2,900, against $1,600 for the homeowners policy the seller had carried, and she adds the property to her umbrella for $150. In the second winter a supply line fails while the house is empty for four days between guests and the ground floor floods. The dwelling coverage pays $60,000 of repairs less the deductible, the contents line replaces $9,000 of furniture and rugs, and fair rental value pays the $11,000 of bookings cancelled over the eleven weeks of repair. The homeowners policy would have declined the whole claim on the business exclusion. All figures are hypothetical.

How to use this

Tell us how you host, send the current declarations page, the contents list and the permit, and we will quote the endorsement, the landlord form and the commercial form side by side across the carriers we represent in Arizona, Nevada, Utah and Idaho, and say which one the facts call for. If the policy in place already permits short-term letting, carries the contents and income limits the operation needs and satisfies the city, the answer is to keep it and simply add the rental to the umbrella if it is missing there.