Lodgify
Policies & Legal

What is Loss of Income Insurance?

Updated 2026-05-28

Loss of Income Insurance, often called business interruption insurance, is a specific policy or an endorsement to a short-term rental insurance policy. It is designed to replace the rental income a host loses while their property is being repaired or rebuilt following direct physical damage from a peril covered by the policy.

This coverage ensures financial continuity by helping to cover ongoing expenses like mortgages and utilities when the property cannot generate revenue. The primary purpose is to restore the owner to the financial position they would have been in had the damage not occurred.

Join the Lodgify newsletter

Once a month, get free templates, expert tips for hosts, industry news, webinar invitations, and more.

How it works

When a covered event renders a vacation rental uninhabitable, the owner must file a claim with their insurance provider. To substantiate the claim, the owner needs to provide documentation that proves the property's income history and future earning potential.

This often includes past booking records, financial statements, and details of canceled future reservations. Vacation rental software that centralizes reservations, like Lodgify, can help hosts maintain organized records for this purpose. Once the claim is approved, the insurer provides payments, typically monthly, for a defined "period of restoration" until the property is ready to be occupied again, up to the policy's limits.

Why it matters

This insurance provides a critical financial safety net for vacation rental owners and managers. Significant property damage can halt all rental income for weeks or months, while fixed expenses such as mortgage payments, property taxes, and insurance premiums continue.

Loss of income coverage helps bridge this financial gap, preventing a major disruption from turning into a catastrophic financial loss. It protects the owner's investment, maintains cash flow, and provides peace of mind that the business can survive a major unexpected event.

For practical guidance, see Lodgify’s Best Short-Term Rental Insurance Companies.

Examples

  • A burst pipe floods a beachfront condo, requiring extensive repairs to the flooring and drywall. The owner's loss of income insurance covers the revenue lost from three months of canceled peak-season bookings while the unit is restored.
  • A severe wildfire forces evacuations and causes significant smoke damage to a mountain cabin, making it unsafe for guests. The policy reimburses the host for the lost rental income during the four-month period while professional remediation and repairs are completed.
  • A kitchen fire in a city apartment makes the unit uninhabitable. The owner files a claim, and their loss of income coverage replaces the earnings from confirmed bookings that had to be canceled over the next six months of reconstruction.
  • A large tree falls on a rental cottage during a storm, crushing a portion of the roof and structure. The loss of income insurance helps the owner cover their mortgage payments by providing funds equivalent to their average monthly earnings until the cottage is rebuilt.

Frequently asked questions

Is loss of income insurance included in a standard homeowner's or landlord policy?+
Typically, no. Standard homeowner's policies are for primary residences and often exclude commercial activities like short-term rentals. A landlord policy covers long-term tenants, not the high turnover of a vacation rental. Loss of income coverage is usually found within a specialized short-term rental insurance policy or as an endorsement to a commercial policy.
How do insurance companies calculate the payout for lost income?+
Insurers calculate the covered lost income based on historical rental data, including past occupancy rates, average daily rates, and seasonal trends. For newer properties without a long history, they may use market data from comparable local rentals and any confirmed future bookings to project the lost revenue.
Does loss of income insurance cover cancellations due to a pandemic or economic downturn?+
Generally, no. This type of insurance is triggered by direct physical loss or damage to the property from a covered peril, like a fire, storm, or flood. It does not cover income loss resulting from market-wide events, economic recessions, or government-mandated travel bans.
What is the 'period of restoration' in a loss of income policy?+
The 'period of restoration' is the timeframe during which the policy covers lost income. It begins immediately after the direct physical loss occurs and ends when the property is, or reasonably should have been, repaired and ready for occupancy. Policies specify a maximum duration for this period, often 12 or 24 months.
Keep reading

Related terms

Policies & Legal

Short-Term Rental Insurance

Short-term rental insurance is a specialized insurance product designed to cover the unique risks associated with renting out a property to guests for brief…

Read
Policies & Legal

Public Liability Insurance

Public liability insurance is a type of coverage that protects vacation rental owners from legal and financial responsibility if a third party, such as a guest…

Read
Policies & Legal

Damage Protection

Damage protection is a product, often in the form of an insurance policy or a waiver, that covers the cost of accidental damage caused by guests, serving as an…

Read
Policies & Legal

Property Insurance

Property insurance is a policy that financially protects the physical structure of a vacation rental and the owner's contents within it from damage, loss, or…

Read
Stay in the loop

Join the Lodgify newsletter.

Once a month, get free templates, expert tips for hosts, industry news, webinar invitations, and more — straight to your inbox.

One email a month. Unsubscribe anytime.