TL;DR: Security deposits protect you but cost you bookings. Damage protection charges guests a small non-refundable fee and covers claims with less friction at checkout. For most short-term rentals, damage protection converts better and creates fewer disputes. Traditional deposits still make sense for high-value properties or event bookings where risk runs higher.
Security deposits protect your property but create work on the back end. Holds to track, refunds to process, and disputes when guests disagree with deductions. That admin load is the hidden cost most managers underestimate.
| Security deposit | Guesty Damage Protection | |
| Guest pays | $200–$1,000 hold (refundable) | $30–$75 fee (non-refundable) |
| Booking friction | Higher—large holds deter some guests | Lower—small fee, no frozen funds |
| Claim process | Direct negotiation with guest | File in Guesty, zero guest involvement |
| Coverage limit | Capped at deposit amount | $3,000–$20,000 per booking |
| Admin time | Manual tracking, refunds, disputes | 85% of claims paid within 4 days |
| Best for | High-value properties, event bookings | Standard stays, high-turnover rentals |
The real trade-off isn’t about protection
Both models protect your property. The question is how they affect everything else: your booking conversion, your admin hours, and your guest relationships.
Security deposits place a hold (typically $200–$1,000) on a guest’s credit card. That money sits frozen until you release it after checkout. Simple in theory. In practice, you’re managing holds, tracking refund deadlines, and navigating disputes when damage amounts exceed expectations.
Damage protection built into your property management software flips the model. Guests pay a small non-refundable fee that funds coverage up to $20,000 per booking. Claims bypass the guest entirely. You document the damage, submit through the platform, and get reimbursed. No negotiation, no dispute, no review blowback. 85% of claims pay out within four days.
What deposits actually cost you
The sticker price of a security deposit is zero. The real cost shows up elsewhere.
Booking friction. A $500 authorization hold at checkout makes guests pause. They’re mentally budgeting for the trip, and a temporary freeze on $500 feels like spending it, even if they know it’s coming back.
Admin time. For every 100 checkouts, property managers report spending 12–16 hours monthly on deposit reconciliation alone: tracking holds, processing refunds, responding to disputes, and documenting conditions. That’s two full workdays per month on paperwork that generates zero revenue.
Dispute exposure. Deposits invite negotiation. “The towel was already stained.” “That scratch was there.” Every conversation becomes a financial argument. Even when you’re right, winning takes time, and a frustrated guest leaves a frustrated review.
When damage protection wins
Damage protection works best when you want to maximize bookings without increasing risk exposure.
The guest pays less upfront, which removes the psychological barrier at checkout. Your conversion rate stays healthy. Behind the scenes, you’re covered for incidents up to the policy limit, which is often more than most deposits would cover anyway.
Claims happen between you and the insurance provider. No guest negotiation. No he-said-she-said. You submit photos, describe the damage, and move on. The guest’s experience ends at checkout; yours ends when the claim processes.
For managers running 1–4 properties, this model solves a specific problem: you probably can’t afford to absorb a major damage incident out of pocket, but you also can’t afford to lose bookings over high deposit requirements. Damage protection threads that needle.
With Guesty Lite, add protection fees as a line item or bake them into your nightly rate. Automated checkout messages can prompt guests to report any accidents, giving you documentation without the confrontation.
When deposits still make sense
Deposits aren’t obsolete. They’re just situation-specific.
High-value properties. If you’re renting a $3M beachfront home, a $75 protection fee doesn’t match the risk. A $2,500 deposit sets appropriate expectations and filters for guests who take the booking seriously.
Event bookings. Bachelor parties, reunions, and large groups carry higher risk profiles. A substantial deposit creates accountability. Guests who balk at the hold probably aren’t guests you wanted anyway.
Repeat offender markets. Some locations see higher damage rates than others. If your property history shows frequent claims, deposits let you adjust protection to actual risk.
If you do collect deposits, structure them to minimize friction. Authorize the hold rather than charging it. Guests see a pending transaction, not a completed one, which feels lighter. Set automatic release dates (48–72 hours post-checkout) so you’re not manually processing refunds. Document everything at check-in and checkout with timestamped photos.
The hybrid approach
Many managers run both models depending on the booking.
Standard weekend stays get damage protection: low friction, fast turnover, minimal admin. High-risk bookings (longer stays, large groups, peak-season events) get a deposit requirement layered on top or instead.
Guesty Lite lets you set rules by booking type, so the right protection applies automatically. A Tuesday-night business traveler sees a streamlined checkout. A 12-person holiday booking sees a deposit hold. Same property, different risk profiles, appropriate protection for each.
The bottom line
Security deposits protect your cash flow but create friction that costs bookings and time. Damage protection trades a small guaranteed fee for coverage that doesn’t involve the guest in claims.
For most short-term rental operators, damage protection is the default that makes sense. Save deposits for high-value properties and high-risk bookings where the friction is worth the deterrent effect.
The goal isn’t eliminating risk. It’s managing risk without managing paperwork.
FAQ
Yes, but it’s difficult. You’ll need to negotiate directly or escalate through the booking platform’s resolution process. Airbnb’s AirCover and similar programs can help, but expect documentation requirements and processing time.
Timestamped photos are your defense. Document the property’s condition before and after every stay. With damage protection, disputes happen between you and the provider—not you and the guest, which keeps the conversation professional and your reviews clean.
Start with lower-risk bookings: short stays, verified guests, shoulder-season dates. Track your conversion rates and claim frequency over 2–3 months. Most managers find the numbers favor protection for standard bookings within a quarter.