Having a second home is a dream. However, it will be more expensive to insure, due to the liability risks since you aren't there permanently. You will also pay more if the home is in a disaster-prone area where earthquakes, wildfires, or floods happen.
If you're considering using your second home as a vacation rental (such as through Airbnb or VRBO), standard homeowners insurance may not cover you, in which case you will need separate coverage.
Does homeowners insurance cover my vacation or second home?
According to the Insurance Information Institute (III), vacation and second homes "present more of an insurance risk than your primary residence [because] you don't physically occupy your second home as frequently [and] puts it in more danger for theft, vandalism and easily undetected damage, like burst water pipes,"
Because of this, it usually costs more to insure your second or vacation home than your primary residence. The price can be 10%-20% more than the homeowners insurance you have on your primary residence, depending on your insurance provider. Having an alarm or burglar system helps, as some companies offer homeowners discounts for them.
Your premium will increase if your second home or vacation home is located in a disaster-prone area where floods, tornadoes, hurricanes, earthquakes, mudslides, or wildfires may occur. Homes located in disaster-prone areas will have increased premiums because these types of events are not included in basic coverage and will need to be add-on riders.
Having a pool or hot tub will increase your premiums
Having certain amenities — like a pool, hot tub, or trampoline— can increase your liability as a homeowner.
According to the III, "a pool is considered an 'attractive nuisance' and will increase your liability risk." Similar to swimming pools, some homeowner insurance carriers consider trampolines an "attractive nuisance" and exclude them in policies.
Other carriers have specific language for trampolines, requiring netting or that they are anchored to the ground depending on your state, according to Steve Wilson, senior underwriting manager at Hippo Insurance.
How to insure your vacation home if you're using it as a short-term rental
Although most homeowners insurance companies have some sort of landlord clause for long-term renters, short-term rentals are new to the market and raise concerns about liability, according to Wilson.
If you're using your second home as a vacation short-term rental, homeowners insurance may not cover it under the "business activity" exclusion, Justin Brodin, director of marketing for Proper Insurance, told Insider.
Although short-term rentals have become popular with homeowners as a revenue generating stream, Brodin said most homeowners do not understand that they are essentially operating like a hotel and need personal home commercial liability coverage.
Airbnb says hosts are eligible for property damage protection, but bodily injury is the responsibility of hosts, and hosts are encouraged to get personal insurance. VRBO encourages hosts to require guests to get property damage protection insurance. Ultimately, the homeowner is responsible if Airbnb, VRBO, or the guests do not cover damage.
For landlords with long-term tenants, the unit is typically rented unfurnished. For short-term rentals, hosts rent the home furnished, so there is increased danger for damage and liability.
Increased liability calls for specialized insurance
Proper Insurance specializes in short-term rental insurance, specifically for homeowners that host guests using AirBnB, VRBO, or on their own. Proper Insurance has special coverage for hosts, like off-premise liability for bikes, boats, golf carts, liquor liability, bed bug protection, and coverage for squatters.
Brodin said short-term rentals are a different exposure and more risk than being a landlord because there are more bodies coming into your home that are unfamiliar with your home. This means an increase in accidents, especially with special staircases or drop-offs in landscaping.
Many vacation rental television shows encourage hosts to leave guests a welcome gift. Sometimes this includes a bottle of wine or access to a wet bar. This increases liability for the host. Brodin gave the example of a guest leaving alcohol behind and an underage kid gets it. Another problem with a wet bar or liquor cabinet is if teens find the key and get intoxicated.
Proper Insurance offers coverage for these scenarios. Due to the liability, trampolines, treehouses, and ziplines are not allowed.
Dealing with squatters in your short-term rental
Short-term rentals are usually for people on vacation for a week or two. Brodin said after the rise of COVID, there was an increase in remote workers as guests staying longer, like a month or more. A downside to this longer stay is squatters — guests refusing to leave.
Squatter rights vary state to state. Proper Insurance pays for legal expenses, like sheriff evictions for guests refusing to leave claiming squatter rights and protection that includes lost income. Brodin recommends limiting guest stays to avoid squatter rights.
How much does insurance cost for a vacation rental?
According to Brodin, "average cost is very hard to determine, as it varies so much depending on the size of the home/short-term rental, layout, and location of the property. The insurance could be $1,000 to $10,000 a year depending on the risk, but will be more expensive than a standard homeowners or landlord policy."
Proper Insurance offers a free consultation and no-obligation quote. You should also contact your homeowners insurance carrier before using your home as a short-term rental to address damage and personal liability concerns.
Make sure you get the coverage you need by asking the right questions. Brodin recommends hosts ask their insurance carrier three questions to determine if their current policy is in fact appropriate for their short-term rental business:
- What is my coverage for damage, theft, and vandalism?
- What is my coverage if an assault and battery happens at my rental?
- What is my coverage for invasion of privacy?
The worst case scenario is if you haven't informed your homeowners insurance company before using your home as a short-term rental and damage occurs or someone is injured. You may not be covered or could be denied coverage.