Short-Term vs. Long-Term Rentals: Key Insurance Considerations

This post is written by Trusted Partner, Park Insurance. To become a contributing editor, please contact our Real Estate Investor Solutions Specialist, David Maxwell at david@reincanada.com.

Investing in rental properties presents unique opportunities, but selecting the right strategy requires careful evaluation of insurance needs. Whether you choose short-term rentals, such as vacation homes listed on Airbnb, or long-term leases with tenants, understanding the insurance implications of each approach is crucial to protecting your investment. In this guide, we explore the key insurance considerations for short-term and long-term rental properties, helping you make an informed decision while ensuring adequate coverage.

Understanding the Insurance Differences

Short-Term Rentals and Insurance Risks
Short-term rentals, often rented on a nightly or weekly basis, expose property owners to higher risks, including frequent guest turnover, increased liability, and potential property damage.
Standard homeowners insurance policies typically do not cover short-term rental activity, necessitating specialized coverage such as:

• Short-Term Rental Insurance: Offers protection against property damage, liability claims, and business income loss during rental periods.
• Commercial General Liability Insurance: Covers accidents, injuries, or damages caused by guests during their stay.
• Loss of Income Coverage: Provides compensation if a covered event (e.g., fire, storm damage) renders the property uninhabitable and results in lost rental income.
• Host Protection Programs: Some platforms like Airbnb offer liability coverage, but these may have limitations and should not be solely relied upon.

Long-Term Rentals and Insurance Considerations
Long-term rental properties, where tenants sign leases for months or years, require different insurance coverages tailored to the stability of the arrangement. Unlike short-term rentals,
long-term lease agreements typically shift some responsibility to tenants, but landlords must still carry key policies, such as:

• Landlord Insurance (Dwelling Policy): Covers the structure, liability protection, and loss of rental income due to covered damages.
• Tenant Liability Insurance: Encourages tenants to carry renters insurance, protecting both parties in case of liability claims or property damage.
• Umbrella Insurance: Provides additional liability coverage beyond standard landlord insurance, offering protection against major claims and lawsuits.
• Equipment Breakdown Coverage: Protects essential systems such as HVAC, plumbing, and electrical systems in rental properties.

Liability and Risk Management

Short-Term Rental Risks
Because of high guest turnover, short-term rental properties face greater liability exposure. Injuries, property damage, and even illegal activities conducted by guests can result in costly claims. Landlords should:

• Ensure proper safety measures, such as smoke detectors, security systems, and property inspections.
• Require liability waivers for guests and set clear house rules to minimize risks.
• Work with an insurance provider to customize a policy that includes commercial-level liability protection.

Long-Term Rental Risks
With long-term tenants, property owners have a different liability profile but still face risks, including tenant negligence, property damage, and lease disputes. Best practices include:

• Conducting thorough tenant screenings to mitigate risk.
• Ensuring lease agreements include liability provisions and maintenance responsibilities.
• Requiring renters insurance to cover tenant property and liability claims.

Cost Implications of Insurance for Rentals

Short-Term Rentals
Insurance for short-term rentals is generally more expensive due to the increased risk profile. Higher premiums reflect the greater likelihood of damage, liability claims, and business interruptions. Factors affecting cost include:

• Frequency of guest stays and turnover rates.
• Property location and exposure to risks such as natural disasters.
• Security measures in place to protect the property and guests.

Long-Term Rentals
Long-term rental insurance tends to have lower premiums as the risk of frequent damage and liability claims is reduced. However, landlords should still ensure they have comprehensive coverage, as common risks such as fire, water damage, and tenant-related incidents can lead to costly repairs or legal issues.

Choosing the Right Insurance Strategy

The choice between short-term and long-term rentals should align with your financial goals, risk tolerance, and insurance considerations. Property owners should:

• Evaluate potential risks and ensure they have appropriate coverage tailored to their rental strategy.
• Regularly review and update insurance policies to reflect changes in usage and risk exposure.
• Work with an experienced insurance provider who understands the complexities of rental property insurance.

Both short-term and long-term rental strategies offer distinct benefits, but ensuring the right insurance coverage is in place is essential for protecting your investment. By understanding the risks associated with each approach and securing comprehensive policies, property owners can confidently navigate the rental market while minimizing financial exposure.

Chris Westrop is the Vice President of Commercial Lines at Park Insurance. With over 30 years of experience in the commercial insurance industry, he is a Chartered Insurance Professional with the Insurance Institute of Canada. As a REIN member and regular attendee at many of their programs, Chris brings valuable insights to real estate investors. Learn more about Chris and the experienced team of commercial insurance advisors at Park Insurance. Chris can be reached at (604) 659-3133 or cwestrop@park.ca.