Short-term rentals make good money — and create different risks. Our review of insurer filings, claim files and broker notes shows that treating a vacation let like an ordinary home or long-term rental can leave hosts exposed to big bills, denied claims and slow payouts. Below is what matters, why it happens, and what hosts and small investors should actually do.
Why standard home or landlord policies fall short
– Many homeowner and landlord forms weren’t written for frequent paid stays.
They often exclude “business activity,” impose low sub-limits for guest-caused losses, or assume owner occupancy. That means damage from high-turnover, furnished rentals, theft during a stay or sewer backups can be partially or completely uncovered.
– Loss-of-rent language in standard policies usually assumes a tenant on a lease — not nightly bookings — so insurers may deny or greatly limit income replacement after a covered loss.
– Typical endorsements touted for “occasional guests” often come with narrow definitions and restrictive conditions that don’t protect hosts who operate regularly or professionally.
Common gaps we found
– Guest-caused damage: treated as a lesser peril with lower caps than vandalism by unknown third parties.
– Liability exposures: liquor, pet-related incidents, amenity-related off-premises activities and communicable disease can be excluded or severely limited.
– Income-replacement: flat per-night allowances or short time caps that undercompensate for real interruptions; some policies refuse to pay “actual loss sustained.”
– Service and claims handling: outsourcing, slow responses and inconsistent adjusters lengthen disputes and reduce recoveries.
How a claim typically plays out — and where it breaks down
1. A guest causes damage, reports it or the host discovers it at checkout.
2. The host notifies the insurer and provides photos, booking records and receipts.
3. The carrier tests the loss against policy definitions (commercial use, guest-caused damage, covered peril).
4. If the policy treats the stay as commercial or applies a sub-limit, payment can be reduced or denied, and income-replacement may not kick in.
Delays often happen when insurers ask for proof that the use was declared, or when they outsource estimates and require extra documentation. Hosts who keep dated photos, booking calendars and pre/post-stay inventories move claims faster.
What better short-term rental cover looks like
A purpose-built short-term rental policy or robust endorsements usually combine four elements:
– Explicit building and host-owned contents coverage for furnished, high-turnover rentals.
– Commercial General Liability (CGL) tailored to short stays, covering third-party bodily injury and property damage.
– Business-interruption or lost-income language that reimburses the actual lost revenue while the unit is unusable.
– Removal or material increase of sub-limits for guest-caused damage, theft and other frequent perils.
Material differences matter: underwriters vary in how they treat bed-bug remediation, sewer backups, squatters, replacement-cost valuation and exclusions for things like liquor or pets. Some add-ons reimburse relocation and remediation costs; others leave these gaps intact.
Who shapes outcomes
– Hosts: control the property and evidence. Good recordkeeping and prompt notification matter.
– Insurers: draft the wording, set sub-limits and choose claims service models (in-house teams tend to settle faster).
– Brokers/specialist underwriters: negotiate endorsements and translate dense policy language into practical protections.
– Platforms and managers: affect guest turnover, vetting and data sharing — all of which influence underwriting and claims resolution.
Financial consequences for hosts and investors
– A single large loss — a fire, a serious injury, or an infestation — can wipe out months of revenue and create liability exposure if coverage is inadequate.
– For liability, advisors now commonly recommend at least $1 million of CGL; many suggest $2 million for hosts with higher exposure.
– Poorly matched policies can reduce cash flow, raise volatility for small portfolios and even breach platform or mortgage conditions, affecting resale value and financing options.
Claims handling and service quality: the unglamorous but decisive factor
Policy wording is necessary but not sufficient. Our review shows that responsiveness, clear timelines and fast, transparent payments often determine whether a claim is merely an expense or an existential problem. Hosts who choose insurers with internal claims teams, clear documentation requirements and good communication report fewer escalation disputes.
Practical steps for hosts and investors
– Read the wording. Don’t rely on summaries or platform “protections.” Get the policy language and endorsements in writing.
– Demand lost-income coverage that pays the actual loss sustained, not arbitrary per-night caps.
– Ask about sub-limits for guest damage, theft, bed-bug remediation, sewer backup and squatting; push to remove or raise restrictive caps.
– Verify CGL limits and whether liquor, pet and amenity-related exposures are included.
– Check claims handling: request expected timelines, whether the carrier uses in-house teams and how quickly payouts occur.
– Keep records: booking calendars, dated photos at check-in/check-out, inventories, guest messages and receipts.
– Work with a broker who knows short-term rental products and can negotiate bespoke endorsements.
Why standard home or landlord policies fall short
– Many homeowner and landlord forms weren’t written for frequent paid stays. They often exclude “business activity,” impose low sub-limits for guest-caused losses, or assume owner occupancy. That means damage from high-turnover, furnished rentals, theft during a stay or sewer backups can be partially or completely uncovered.
– Loss-of-rent language in standard policies usually assumes a tenant on a lease — not nightly bookings — so insurers may deny or greatly limit income replacement after a covered loss.
– Typical endorsements touted for “occasional guests” often come with narrow definitions and restrictive conditions that don’t protect hosts who operate regularly or professionally.0
