Should you purchase travel insurance for your vacation rental?

Vacation rentals booked through Airbnb and its alternatives have become popular holiday destinations for all types of travelers, from extended families staying in large beachfront homes to couples vacationing in swanky city apartments.

But what happens if these rental properties, especially ones worth millions of dollars, get damaged before you arrive or if your plans unexpectedly change, causing you to need to cancel or shorten your stay?

While the exact outcome will depend on the situation, if you purchase travel insurance, you may find you're eligible for compensation.

So how do you know if it's worth the investment before your next trip? TPG dug into the details to determine what standard travel insurance policies may cover you for when staying at home rentals — and when you may want to purchase some additional coverage.

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What travel insurance covers for vacation rentals

Traditional travel insurance policies offer features that will cover you and your invested travel costs, whether you're staying at a hotel, friend's house or rental property. Although the exact benefits for vacation rentals may vary slightly depending on the policy you choose, there are a few situations that most will cover.

Your vacation is canceled due to sickness, injury or an emergency

Many hotels offer free cancellations until two or three days before arrival so long as you book your rooms with flexible rates. However, this is rarely the case for vacation rentals, which often have strict cancellation policies requiring 30 to 60 days of advance notice to cancel without penalty. Some even go so far as to have completely nonrefundable deposits, regardless of the cancellation circumstances.

Fortunately, there's a workaround to this conundrum if you find yourself in an unexpected situation involving your health or the health of someone close to you: trip cancellation coverage. If you have insurance with trip cancellation coverage and cannot complete your trip as planned due to select health-related issues, you'll be able to recoup up to 100% of your nonrefundable costs.

While the exact cases that are eligible for complete reimbursement vary by policy, know that many pertaining to health are covered. For example, World Nomads' trip cancellation insurance policy will cover you in the event you need to cancel your vacation, including any stays at home rentals, due to illness, injury or a death in the family.

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You have to cut your vacation short due to a medical reason or natural disaster

In addition to helping you out when you need to cancel your entire vacation, insurance can reimburse you for early departure fees when you find yourself needing to cut your vacation rental stay short. Know, though, that you'll need to have a policy offering trip interruption protection to be eligible for this perk.

Covered reasons for ending your stay early will vary from plan to plan, but typically, policyholders can expect reimbursement due to health-related issues and natural disasters like hurricanes, wildfires and blizzards. For instance, IMG's travel insurance covers sickness, injury and natural disaster evacuations when cutting vacation rental stays short.

You cannot stay at the rental due to it being uninhabitable

If you book a vacation rental that is not fit for human habitation, then the booking company or owner should refund all your costs. However, there are rare occasions when this does not happen, so it's important to have travel insurance as a backup.

To qualify for reimbursement from your travel insurance provider due to uninhabitable conditions, you'll need to read the fine print of your chosen policy. Allianz, for example, defines uninhabitable as "a natural disaster, fire, flood, burglary or vandalism that has caused enough damage (including extended loss of power, gas or water) to make a reasonable person find their home or destination inaccessible or unfit for use."

Other situations, such as having an unpleasant or dirty vacation rental, would not be enough to trigger this coverage.

Should you have to find another property or cancel your trip completely due to uninhabitable conditions at your original rental, your travel insurance plan will cover the added costs you incur.

Related: 13 mistakes to avoid on your next vacation home rental

What travel insurance won't cover for vacation rentals

As you may expect, there are some situations when travel insurance won't cover extra expenses related to stays at rental properties. To have a solid understanding of what to expect, be sure to read the fine print of any insurance product you choose. Only circumstances listed in the policy will be covered. The following are two key reasons why you wouldn't be covered.

You accidentally damage the property during a typical stay

Most travel insurance policies will not cover the costs of damage you incur at a rental property, even if it was done by accident. As a result, you must pay for a replacement or repair to any item you accidentally break or damage, such as a work of art, a garage door or wine glasses. Depending on the item in question, this can quickly add up.

If you have a homeowners or renters insurance policy, know that it may include protection beyond regular limits called "umbrella" coverage, which can help cover damage caused at a rental property. Keep in mind, though, that you'll have to pay your deductible first. Additionally, your home insurance rate may rise if you submit a claim for vacation rental damage.

Should you wish to stick with travel insurance, you may be able to add extra vacation rental coverage to a traditional policy to assist with accidental damage. Faye's travel insurance, for example, has an add-on feature that offers "coverage if you unintentionally damage the vacation rental property you're staying in or its contents, while in-trip." It costs about 10% of what you'll spend on the main policy itself.

You damage the property while hosting a party

Across the board, travel insurance policies are much more strict about damage caused during parties. If you host an unapproved party or event at a rental property and damage any part of the rental, you will be responsible for covering costs associated with repairs and replacements.

Even approved events are not entirely off the hook for any damage caused to the property. Should you decide to use a vacation rental for an approved event like a wedding or family reunion, expect the booking company or owner to require you to purchase an event-specific insurance policy that covers guest liability, home damage and other items that may be specific to the location.

Related: 6 truths and myths about 'cancel for any reason' travel insurance

Bottom line

Home rentals can be a great lodging solution when you're on vacation, especially if you're traveling with family or friends. However, the high cost of some vacation properties and the cancellation policies often in place mean you should probably purchase some kind of travel insurance to protect your investment.

Typical travel insurance policies will offer coverage for your vacation rental costs should your trip be canceled or delayed for events covered under the policy, but you may be on the hook for other scenarios. As a result, it's vital you pay careful attention to your policy's terms. Doing so will ensure you know what to expect should you face an unexpected situation while enjoying your temporary home away from home.

Related: 7 things to look out for when buying travel insurance, according to an expert