Unfortunately, there are more bad than good trip insurance companies and policies out there. I’ve seen some really bad ones, and usually companies that sell policies alongside bookings (Expedia, Airbnb) have really crummy policies. I exclusively purchase through an independent third party trip insurance broker who can answer questions/specific scenarios up front and help select a policy with terms favorable to the risk profile.
People had bad experiences with trip insurance because they did not understand the terms or the product. Legally, it’s all there for them to leisurely read in the fine print, but most don’t.
Most good policies will cover private transaction lodging so long as there is a reasonable paper trail and the transaction is arms length. I insure my 2-4 week whole-house trips this way when using VRBO, Airbnb, or a local real estate firm.
As an owner and sometimes renter, I absolutely would not rely on the good graces of an owner to deviate from our agreed upon contract and make me whole. Spending $5000 with no hedge is a dangerous game to play, either insure it with a CFAR trip insurance policy, offer $$$ to the owner in exchange for a more favorable refund policy (my daughter’s private school does this for summer camp), or book a hotel.
IMO best case scenario here is a negotiated settlement, share the loss. I’m just assuming the owner has buyer’s remorse with offering the full refund in June as evidenced by the ghosting.