I first though this was a great idea and offered it to a couple people who had sent inquiries. One agreed and I started to re-work the text in my rental agreement when I realized this could potentially create a huge problem. Part of my agreement says, "Your security deposit if fully refundable provided the following provisions are met:

1. The cottage is left clean and in the same condition as when you arrived. If not, an additional cleaning fee may be charged.

2. No damage is done, beyond normal wear and tear. Furniture is not stained or torn. No towels or linens are lost or damaged.

3. All garbage is placed in refuse containers outside and soiled dishes are cleaned. Used towels should be placed on the bathroom floor or in the bathtub.

4. All keys are left on the kitchen counter and cottage is left locked. A $20 fee will be charged for lost or missing keys.

5. There is no theft or damage to the cottage or property due to negligence of the guest to properly lock and secure windows and doors or turn off appliances.

6. Any charges accrued during the stay are paid prior to departure.

It was at this point that I realized that if I went with the damage insurance, the renter would have no incentive to do any of those things. I think having the security deposit really motivates renters to leave your home in the best condition possible because they want to be sure they get all of their money back. Aside from filing a claim for some real damage, the insurance doesn't do that.

I ended up lying to the guest and telling them that I just found out this option was not available in my state and I offered them a slight discount on my initial deposit quote. They still rented and I feel much better about it.

So, long story, short, that's my reasoning behind not choosing the insurance option.

Fortunately, we have only had two instances where we had to charge an extra cleaning fee (the tenants were absolute pigs) and another where one had an unapproved pet in the unit (which we would have allowed but she was trying to avoid the extra $50 cleaning fee). Both of these tentant talked me down on the rental rate and I have since learned that that is a HUGE red flag and won't rent to anyone who tries to negotiate the price. It's just not worth it.

Some have questioned the incentive guests have to protect our property if they pay for the damage insurance policy. Guests should be informed that if a claim is made, it could impact their other insurance.  The insurance industry tracks all our claims -- home (owner or rental), auto, health, etc. - and the damages claim would impact the scoring system used to price insurance rates.  (Similar to credit scores in the financial world).

That said, the points Lorraine made regarding the guest leaving the property in clean condition is important.   We can't make a claim for these types of policy violations. 

What is compelling to me about the damage insurance is that coverage exceeds the deposit we currently take. What if they break or take the new 60" flat screen tv?  I'd have to chase after the tenant to collect the balance of the loss. 

I think this all shows the importance of effective screening.  Here we go!

I wonder if there is a policy (or is the one on VRBO) available for the owner to pay for.  Money's money isn't it?  Why should the company providing the policy care where it comes from? I'd be happy to buy one for each renter and not even tell them that I've done so.  This would solve the disincentive for the renter to keep the place clean and undamaged.  I would also still charge the refundable security deposit and be able to refund it if any damage did not exceed the amount of the policy coverage.  Looks like a win-win situation to me.

Linda

We have been renting our property for the past 5 years.  When I first saw the Insurance coverage instead of a Security Deposit, I thought, "Yeah, a way to cover the damage that is beyond the Deposit".  What a huge mistake in only charging for the Property Damage Insurance.  We started the program in April and the amount of damage to our home has increase hugely!!!  I have filed 2 claims already for carpet damage from spills all over the home that did not come up with regular over the counter carpet cleaner, broken refrigerator shelf, damaged walls, use of a plumber because the guest said the toilet was broken when in fact they only clogged it and didn't feel like cleaning up the mess.  The insurance company paid immediately for all damages as long as I sent them pictures of everything along with a receipt for payment to the plumber, carpet cleaning company and purchase of the new shelf.  I since have another claim I have yet to file again, for pink stains on the carpeting (carpet is very light in color, ugh!) again and a broken couch that can not be fixed because the company who built it went bankrupt and we can not find parts to replace the reclining mechanism.  Purchasing a new sofa is not an option since then we would end up with a sofa and love seat that no longer match. I will post back after I have contacted the insurance company as to what can be done to replace/fix the sofa.  My biggest concern is, what happens if an owner keeps constantly having to file a claim?  Like I stated earlier, our damages from guests has gone up considerably since we started this program.  I will be going back to collecting Security Deposits after this last group with insurance has finished their stays.  Also, guests do leave your property much more dirtier than they did before when their deposit was involved.  And no, you can not collect on the insurance for your property left a mess, there has to be damage of some sort.

I may be mistaken, but doesn't this kind of damage insurance require that the damage be reported before the guests depart?  Most of us do not have a supervised check-out when damage could be discovered and a person stealing your bathrobes or who has left hidden damage is not likely to admit it ahead of their exit.

The problem would seem to be proving who caused the damage/loss.  Does the insurance work in these cases?

I have started using this insurance this year, but sent out leases before i really thought it through. I forgot about the fact that I would deduct from security for lost beach badges and lost keys. Insurance doesn't cover that. So I updated my lease for any new renters with a separate beach badge/key deposit. But now my question is, will the insurance cover stolen, lost or damaged bicycles or beach chairs. Or is it limited to furniture and household contents only?

Be protected. Avoid nasty and costly landlord/tenant disputes involving damage or missing items with a home inventory.

Your vacation rental property is an investment, and thus it is important to protect it. Along with insurance, one of the best ways to protect your home is with a home inventory. Once your inventory has been printed out, have your tenant review, note the existing condition or damages throughout the home, and sign off on upon move in.

Photos are the best way to document the condition of furniture, carpet, walls, finishes, appliances and the overall condition of your vacation property. This is something you can do yourself or hire an inventory service professional to prepare the inventory.

I posted this in another thread, but it seems applicable here as well:

This may sound crazy, but it's worked pretty well so far. For about six months, I've been offering my guests a choice. They can give me a $250 Refundable Security Deposit (different than the booking deposit to reserve their dates) or pay me a $50 Damage Waiver Fee. The $250 Refundable Security Deposit is just what you all think it is, a fully refundable deposit pending any damaged or missing items. I've been renting for just over a year and have yet, knock on wood, to have to withhold anything. Based on that experiece, I decided to try offering a $50 Damage Waiver Fee. Basically, the guest is paying me an additional $50 that is not refundable and I use it to self-insure. My guests are split about 50/50 on which they choose. I've now collected more than the amount of the Refundable Security Deposit and if there's no damage, it adds to my bottom line. If damage does occur at some point in the future, I've got more than that guest's $250 for repair or replacement.

Why should some insurance company, who can refuse to cover whatever they want, get to keep my guest's money. It might as well be me instead. Plus, I use that money to replace things that wouldn't typically be charged against a Refundable Security Deposit, such as worn out linen or a broken wine glass.

Mike