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  • Writer's pictureChuck Luce

Short-Term Rental Insurance: A Cape Cod Homeowner's Guide to Coverage

Updated: Mar 6

*This content  is not “advice.” We are not insurance professionals.  Please speak with a licensed and experienced insurance professional before making any insurance-related decisions. 

In the realm of short-term rental property ownership, the topic of insurance often lurks in the shadows, waiting to be confronted. At the onset, let’s clarify - we (ProHost™) aren't insurance experts nor do we have any financial interest in how our clients are insured. However, this doesn’t diminish the importance of highlighting the significance of insurance, an essential tool to minimize risk and an obligatory aspect in many instances in Massachusetts.

Before diving into the risks that hover around short-term rental homeowners, it's imperative to acknowledge the legislative requirements in Massachusetts. The state mandates $1 million in liability coverage for both you, the homeowner, and your short-term rental property. Here's a snippet from the Massachusetts legislation:

“An operator (that’s you - the homeowner) shall maintain liability insurance of not less than $1,000,000 to cover each short-term rental unless such short-term rental is offered through a hosting platform that maintains equal or greater coverage."

In simple terms - you need $1M in liability coverage for your short-term rental. However, if you utilize platforms like Airbnb or VRBO, both of which carry $1M liability policies, no additional coverage is required. But there's a catch - for many of our clients who opt for “direct bookings,” these aren’t covered by the Airbnb and VRBO liability policies. Additionally, these coverages are not comprehensive and may not pay out in many circumstances.

Apart from Airbnb and VRBO, your agent or homeowner’s insurance company might have informed you that you have $1M or more in liability coverage. If not done yet, we strongly recommend discussing this with them soon and each year you own the home. It's vital to emphasize that you are short-term renting your home and ensure your liability coverage extends to potential injuries sustained by short-term guests.

Insurance is a complex and often daunting subject. The tendency to focus on small risks over the more catastrophic ones is common among homeowners (which makes sense, as the small issues like a damaged sofa or rug are the ones we hear about most often). While property damage from guests might cause inconvenience and expense, the greater concern (in our unprofessional opinion) lies in liability. Imagine a scenario where someone sustains severe injuries on your property and you’re faced with a lawsuit demanding $1M in compensation. Without comprehensive coverage, this could be financially crippling, potentially forcing you to sell your property and likely creating other major life-changing consequences.

When reviewing insurance as short-term rental homeowners, you may want to consider these items.  Erin and I (as homeowners of a Cape Cod vacation rental) review these annually and talk with an agent(s) for further insight.

  • Adequacy of Airbnb and VRBO Coverage: For us, renting outside of these platforms with direct bookings renders the existing coverage from these companies inadequate. Additionally, we are uncomfortable with the limits and exclusions of these policies.

  • My Management Company Provides me with Coverage (for non-ProHost™ clients): ProHost™ does not offer any supplemental coverage for homeowners (UPDATE: We may be able to offer some supplemental damage protection). In our pursuit to provide homeowners with as much value-add as possible, we researched the availability of such coverage (and will continue to do so). We’ve determined that 1. We are too small to gain the attention of the companies that sell these programs (not to be confused with policies), and 2. Similar to Airbnb and VRBO coverage, these programs are not comprehensive.  In the words of an unnamed insurance agent, “These programs [not “policies”] are aimed to make homeowners feel warm and fuzzy, but in practice, they provide very limited protection.” This is not to downplay other managers’ attempts at protecting their clients (we applaud them for that). However, from the limited understanding we have of these programs, we would not feel comfortable relying on them to fully protect us.

  • Standard Homeowner’s Policy Sufficiency (consider a specialized policy instead): While your current homeowner’s insurance coverage is likely meeting the $1M liability threshold mandated by MA, we question whether typical homeowner’s coverage (or even coverage with home-sharing endorsements)  is enough. The ambiguity around guest injuries (or worse) during various lengths of stay (or while you are “conducting business” as a short-term rental operator) raises concerns. Some insurance companies/agents specialize in providing homeowner’s insurance policies exclusively for short-term rental homeowners. These policies cover additional risks not covered by traditional homeowner’s policies (such as squatters, loss of income, bed bugs, etc.).  Additionally, these policies have a commercial business element to them that clearly states they will cover liability events while you are conducting business as a short-term rental operator (along with all the standard homeowner’s coverage). These policies are pricier than your standard homeowner’s policy. However, the additional coverage is valuable to us and we’ve decided to use one of these policies. Additionally, we will be able to lower the annual premium by increasing our deductible to something we can manage if something terrible happens.  Ideally, we will never need to use this, but we will sleep better knowing we are covered.

  • Alternative Options: Exploring nightly insurance through specialty providers has been intriguing to us. These companies offer one-night policies for each night you have a guest(s).  The idea is that you can pass this expense off to the guest as an additional fee each night.  Property Management Systems like the one we use (Hostaway) can manage the process of allocating the policies to each of your stays. We will continue to explore this as an option but we’ve found it challenging to get clarity on what the policies cover and cost/availability to all our homeowners has been a concern for us. 

In conclusion, insurance for short-term rentals demands scrutiny and understanding. While certain existing policies might appear sufficient, the devil lies in the details, especially when it comes to liability. It’s crucial to assess all options diligently, ensuring comprehensive coverage that meets mandates but also safeguards against potential risks.

If you’d like to chat with us about this further, we encourage our homeowner clients to do so.  Please reach out to Chuck to schedule a few minutes to discuss this.  



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