Short-Term Rental Insurance: What You Need to Know

Property owners are meeting demand for unique, local experiences by offering short-term rentals and boutique hotels. These accommodations provide a charming alternative to traditional hotels and motels, but they also involve risks. As the market grows, so does the need for boutique hotel and short-term rental insurance.

The Booming Short-Term Rental Industry

The emergence of platforms like Airbnb and Vrbo has made it easy for property owners to rent their properties on a short-term basis, and many vacationers prefer to stay in unique homes, cabins, villas and cozy hotels. As a result, the boutique hotel and short-term rental market is booming.

• Boutique Hotels: According to Yahoo Finance, the global boutique hotel market is expected to achieve a compound annual growth rate (CAGR) of 7.1% between 2024 and 2030, to reach $40.26 billion. This growth is fueled by demand for personalized and unique travel experiences.
• Short-Term Rentals: Meanwhile, Grand View Research says the U.S. short-term vacation rental market is valued at $68.64 billion as of 2024 and is expected to grow at a CAGR of 7.4% between 2020 and 2030.

Boutique Hotel and Short-Term Rental Risks

The very nature of the hospitality industry makes it vulnerable to a wide range of exposures. For boutique hotels and short-term rentals, often run by owners with minimal staffing, these risks can be particularly challenging to manage.

Common threats include:

• Property Damage. Damage can stem from natural disasters like storms and wildfires, but it can also be the result of careless or vindictive renters. A guest who breaks rules and throws a big party, or a renter who’s angry about something and decides to trash the place, could cause thousands of dollars in damage. In one example, WPTV says teens who threw a party at an Airbnb caused an estimated $7,000 in damage, plus lost revenue from a booking that needed to be cancelled.
• Squatters could move in if a property is vacant between rentals, and renters could become squatters if they refuse to leave once their rental period is over. In one example, ABC 7 Eyewitness News says an Airbnb tenant refused to leave once their planned stay was over and remained in the home for 17 months without paying rent.
• In response to housing shortages, some jurisdictions have passed new rules prohibiting or restricting short-term rentals. Bloomberg says newly enacted regulations include rules that require homeowners to occupy the property along with their guests, limit the number of homes a person can list, or cap the total number of nights a property can be rented in a year.
• The NFPA says short-term rentals have experienced an increase in deaths and injuries, including more than 100 children who drowned in pools in 2022. Property owners and managers may be held liable for injuries that occur on the premises.

Why Standard Homeowners Insurance Isn’t Enough

If you’re turning your home into a boutique hotel or short-term rental, you likely already have homeowners insurance – but standard homeowners insurance won’t be enough to cover your additional risks.

Personal insurance policies, including homeowners insurance, typically exclude commercial activities. Renting out your property increases your risks, so insurers aren’t willing to cover these extra risks under the same policy at the same cost.

Some platforms like Airbnb offer some protection for hosts, but these protection plans can be limited, and you can still end up with coverage gaps after a loss.

Boutique Hotel and Short-Term Rental Insurance Needs

Having adequate insurance coverage can safeguard your property, your business and your financial security. Here are some common insurance types that you may need when operating a short-term rental or boutique hotel.

• Commercial Property Insurance. Depending on your situation and the insurance carrier you use, you may be able to add a short-term rental endorsement to your homeowners insurance policy. Alternatively, you may need a separate policy.
• Liability Insurance. Commercial activity comes with greater liability risks. Consider securing an umbrella insurance policy to increase your limits.
• Employment Practices Liability Insurance. If you have employees, EPLI coverage can protect you from employment-related claims involving things like discrimination, harassment and wrongful termination.
• Workers’ Compensation. If you have employees, you may be required to carry workers’ compensation insurance under state law. If a worker is injured, this coverage will take care of the worker and protect you from lawsuits.

Depending on your unique activities and exposures, you may benefit from other types of coverage as well. Heffernan Insurance Brokers can help you review your risks and coverage needs. Contact us.