I'd recommend that you weigh the potential benefits against the additional workload and potential difficulties that comes along your way.

Gross negligence often comes in the form of folks just not understanding fully their policy and most are not going to hire a lawyer to read over the insurance policy hence we like doing the additional asset protection.

Two days ago, I received both texts from my tenants regarding the music and texts from my neighbor telling me to tell them not to come over and complain about his music.

It is no different than a loan company requiring insurance on your house or car.As @Dawn Brenengen said, require that they put you down as additional insured.

I am a newer investor (currently 1 short-term rental in addition to my primary residence) looking to purchase a property that I will make into a short-term rental. 

Positioned on a corner lot, it boasts covered off-street parking with additional guest parking on the side.

Additionally, the charming architecture of the homes along the street enhances its appeal, making it a prime destination for investment.

If they want to receive a net of 5%, then you would probably have to pay an interest rate of 7.1% and withhold 2.1% of it. 

Ask them to please be more mindful and if it happens again, add it to their ledger per their lease.

It is easy to say, for instance, I believe office conversion to apartment is too risky in this market, so if I received a deck from a syndicator for a project like that, in about 30 seconds I can see what the plan is, and then discard the deck.As always, appreciate your inputs in assessing passive investments.