Here's something most Airbnb and VRBO hosts don't realize until it's too late: the moment you accept your first paying guest, your homeowners insurance probably stops covering you. That policy you've been paying for? It was designed for your personal residence, not a business operation. And make no mistake—in the eyes of insurance companies, renting your property on short-term rental platforms is absolutely a business.
You might be thinking, "But Airbnb has AirCover—I'm protected, right?" Not entirely. While Airbnb's AirCover and VRBO's liability insurance offer some protection, they come with significant gaps that could leave you financially exposed. If a guest slips on your deck, if a fire destroys your rental during a booking, or if you need to cancel reservations for weeks while repairs are made, you need to understand exactly what's covered and what isn't.
Why Your Homeowners Policy Won't Cut It
Most homeowners and landlord policies contain a full business exclusion clause. This means if you file a claim related to your short-term rental activity, your insurer can deny it outright. According to a 2024 Insurance Journal report, 60% of short-term rental hosts with standard homeowner's policies face claim denials due to exclusions for commercial activity.
Think about it: when you rent to paying guests, you're entering a legal business arrangement. Your guests are customers, not friends staying over. The liability exposure is completely different. Some insurance companies offer a home-sharing endorsement that you can add to your existing policy, but these typically provide only limited coverage—around $10,000—and only work if you live on-site and the property is your primary residence. If you're renting out a second property or vacation home, that endorsement won't help you.
The Truth About Airbnb AirCover and VRBO Protection
Airbnb's AirCover sounds impressive at first glance: up to $3 million in damage protection and $1 million in liability insurance. VRBO offers similar $1 million liability coverage. But here's the catch—these aren't insurance policies. AirCover is a reimbursement program with strict limitations.
AirCover only covers damage caused directly by guests during their stay. It doesn't protect you against normal wear and tear, theft of cash or valuables, natural disasters like hurricanes or wildfires, or damage to neighboring properties. If your guest's party gets out of hand and someone damages your neighbor's fence, you're on your own. If a guest leaves a candle burning and starts a fire, AirCover might help—but only if you can prove the guest was responsible and you file your claim within 14 days of checkout.
The liability coverage has its own exclusions. It only covers accidental incidents—not intentional acts or known hazards you failed to disclose. If a guest trips over a loose floorboard you knew about but didn't fix, your claim could be denied. And critically, neither Airbnb nor VRBO provides any coverage for lost rental income. If your property becomes uninhabitable and you have to cancel weeks of bookings, those platforms won't compensate you for the lost revenue.
What Specialized Short-Term Rental Insurance Actually Covers
Specialized short-term rental insurance—sometimes called vacation rental insurance or commercial dwelling policy—is designed specifically for properties you rent to paying guests. These policies typically cost between $2,000 and $3,000 per year, depending on your property's value, location, and amenities. That might seem steep compared to homeowners insurance, but it's comprehensive protection built for your business model.
A proper short-term rental policy includes several key components. Property coverage protects your dwelling, contents, and attached structures with the policy explicitly stating "short-term rental use." This means furniture, appliances, electronics—all the things that make your rental attractive—are covered if damaged by guests, vandalism, or covered perils like fire or storms.
Liability coverage is typically $1-2 million and covers guest injuries, damage to guest belongings, and resulting lawsuits. This is crucial if someone gets hurt in your rental—medical bills and legal fees add up quickly. If a guest slips in your bathroom and breaks a wrist, your liability coverage handles their medical expenses and any legal action they might take.
Loss of rental income coverage—also called business interruption insurance—might be the most valuable component. If a covered event makes your property uninhabitable, this coverage compensates you for the rental income you lose during repairs. A 2024 short-term rental market analysis showed hosts typically lose $2,000-$5,000 per month during property closures. This coverage costs an additional $100-$400 per year but can save you from serious financial hardship.
The Pool and Hot Tub Problem
If your rental property has a pool, hot tub, or other high-risk amenities, you're in an entirely different risk category. These features are huge selling points for rentals—they let you charge premium rates—but they also significantly increase your liability exposure. Standard policies often severely limit or completely exclude liability coverage for pools used in a business capacity, even if you only rent occasionally.
Insurance experts recommend carrying commercial general liability insurance with at least $1 million in coverage—$2 million if you can afford it—for properties with pools or hot tubs. Many insurers will require you to implement specific safety measures: proper fencing, posted safety signage, rescue equipment on-site, and liability waivers for guests. Some may even require you to remove diving boards and slides to reduce negligence risk.
And here's something most hosts don't know: dozens of cities now require specific liability insurance amounts to obtain a short-term rental license. Houston's 2025 ordinance requires $1 million in coverage. Denver requires the same. San Francisco requires at least $500,000. If you don't have proof of adequate coverage, you can't legally operate your rental.
How to Get Started with the Right Coverage
Don't wait until you have a claim to discover you're not properly insured. Start by calling your current insurance company and asking directly whether your policy covers short-term rental activity. If they say no—or if they offer only a limited home-sharing endorsement—it's time to shop for specialized coverage.
Several companies specialize in short-term rental insurance. Proper Insurance offers comprehensive four-in-one policies that cover short-term rentals, personal use, occasionally unoccupied periods, and long-term tenants. Foremost provides customizable policies with landlord package options. Look for policies that explicitly state they cover commercial or business use of your property for short-term rentals.
When comparing quotes, pay attention to liability limits, whether loss of rental income is included or costs extra, coverage for high-risk amenities like pools, and deductible amounts. Don't just go with the cheapest option—a policy that costs $500 less per year but excludes rental income protection could cost you thousands if you need to file a claim.
Running a successful short-term rental requires more than great photos and five-star reviews. It requires protecting yourself against the financial risks that come with welcoming strangers into your property. Yes, specialized insurance costs more than your old homeowners policy. But compared to a $50,000 liability lawsuit or months of lost rental income, it's a bargain. Get quotes, compare coverage options, and make sure you're truly protected before your next guest checks in.
