The damage deposit is the limit that you can charge their card (if that's how you're taking the money). Further damage beyond that is not going to be chargeable to the credit card (Vrbo takes the actual deposit money and holds it until you release it or a set number of days passes after the guest leaves and then they release it automatically if you haven't filed a claim against it).
For a situation where the damages are in excess, that's where both your insurance company and the courts come in. The guest is going to be liable if you chase them. Otherwise, it's on you and your insurance company. My deductible is $1000, my damage deposit is $500... if the amount is between those two numbers, I'm out that money, but if it goes over $1000, I might file a claim with my insurance and have them chase the guest for the total damages if they want to. Or I might chase the guest for the damages by filing a claim in court and forcing the guest to defend their actions. Often just filing in court in a jurisdiction the guest will find expensive to defend themselves in is enough to get the guest to make you whole.
As for legal clauses... really it's time you had a real estate lawyer local to where your VR is located review your rental agreement to ensure you are covered in case you get the guest who likes to start fires.
feibus has hit the nail on the head (as usual).
Same boat here. I have a bigger gap. $200 Security Deposit and $2,000 deductible with my insurance carrier. I've considered the risk of self-insuring for the difference and decided that it's reasonable to do so. Most damage is likely to be excessive cleaning or a broken piece of furniture which my $200 deposit would cover. To do between $200 and $2,000 worth of damage a guest would have to break or steal a major appliance.
After that, there is really only fire -- in which case my insurer would step in (and you should have STR insurance if you don't because homeowners insurance will NOT honor a claim if they find out you were renting the property as a STR). Proper and Cbiz specialize in STRs.
But, FWIW, here is my language since you asked. Attorney drafted, and Bonesxxx approved:
Security Deposit: A refundable Security Deposit of $200 is required on all rentals. The Security Deposit is held pending confirmation that there is no damage to the Cabin or its contents, no extraordinary cleaning is required, trash and GUEST’s belongings have been removed, there are no missing items including books and DVDs, and there is no liability for HOMEOWNER from GUEST’s use of the Cabin and Property.
Damages not limited to Deposit: GUEST agrees to pay all charges and costs for damage, repairs, or excessive cleaning necessary due to GUEST’s use of the Cabin and property including any legal damages which may exceed the amount of the Security Deposit and shall not be limited to the amount of the Security Deposit.
On the contrary, many homeowners and traditional affordable landlord insurance POLICIES will cover the loss because they are a “covered peril‘ in the contract. But they would non-renew after learning of the use.
Exceptions to this are if your policy specifically has an Exception clause that states specifically that there shall be no coverage granted if the house is used for certain activities, and spells out short term rental. Most don’t. Or if there was material misrepresentation; e.g., you were applying for a traditional landlord policy (month-to-month) and the underwriter asked you if it was a vacation rental.
This is the very reason that insurance companies have UNDERWRITERS. An underwriter screens out risks because once the policy is issued, the coverage is very broad and liberal. If insurance policies were more limited, there would be no reason to underwrite and no application to fill out.
The way to learn what is covered is to look in the Exclusions paragraph.
I don't know why you choose to take exception to good advice with an exception - many traditional policies will cover this once - (or why you feel the need to shout POLICIES and UNDERWRITERS at me).
What I know is this: my best friend owns an independent insurance agency selling all types of policies from all major insurers. It started as his father's business and, between them, they have 80 years experience in the insurance business AND they do business in a ski resort town stuffed with STRs. When he found out I was renting my cabin on OTAs, he went out of his way to reach out me and say, "dude, make sure you have a STR policy and not a homeowner or landlord policy. These companies are using any and every excuse they can to not honor claims and that is a major one. I've seen it happen to my clients and I don't want to see it happen to you."
I think I'll take his word but thanks.
I'm skeptical about the value of a clause in a rental agreement that gives an owner the right to charge the guest's credit card in the event that the guest causes damage in excess of the amount of the damage deposit. First, unless the guest books directly with the owner, the owner isn't going to know the guest's credit card number. Second, if the guest books directly and the owner has the credit card number, the guest can dispute the charge and issue a charge-back on the credit card.
The $59 property damage insurance that you require your guests to purchase is virtually worthless from an owner's point of view. The guest is the insured, not you. If the guest denies doing the damage, the insurance won't pay. Also, the policy only covers accidental damage. If the guest carves his initials in your dining room table or throws a beer bottle through your window, the insurance won't pay.
In my opinion, your best option is to collect a refundable damage deposit from each guest. I have a $300 damage deposit. My insurance deductible is more than $300, so I'm "at risk" for any amount between $300 and my deductible. It's a risk I'm willing to take. If you aren't willing to take that risk, then you should charge a damage deposit that is equal to the amount of your insurance deductible. In the event that there is significant damage to your rental (such as the fire your neighbor experienced), your insurance carrier will pay you the money for your claim and then seek restitution from the guest who caused the damage.