Simply Renting out your home using Airbnb isn't as simple as you may think.
Home insurance coverages vary when it comes to rental properties, as the majority of home insurances are only applicable to owner-occupied properties or long-term rentals bound by leases. If you’ve invested in a property and plan to use it as a “vacation property”––meaning you rent it out for profit on a temporary basis (regardless if for one night, a week, or a month), you’ll need to take precaution.
According to my research, roughly 7% of homeowner’s and renters actually file a claim with their home insurance company. A handful of those claims are denied, much to the dismay of the policy holder.
As the homeowner or renter, you’ll need a comprehensive insurance policy that caters to your specific situation as a renter. For example, if you’re renting out several properties on a temporary basis, you need an insurance policy that covers each.
Why Temporary Rentals Are Considered High Risk
Most insurance carriers view short-term rentals as high-risk. Just as health insurance companies have to take into account age and various health factors before providing quotes, insurance companies need to know if unidentified individuals are consistently staying on the premises. Of course, there are different types of rental property.
Individuals seeking rental properties to invest in, or advertise spaces for rent seek out the best real estate websites for prime listing opportunities. A bed and breakfast business differs from a vacation home or timeshare, which differs from rental marketplaces like Airbnb, HomeAway, and even Craigslist. However, how insurance companies view these property types is the same.
Many People Are Unprotected
Consider the millions of hosts on Airbnb. It’s fair to assume that the vast majority of them that carry only carry homeowner’s or renter’s insurance. Many of these policies will not cover events incurred by a guest. Hosts on short-term rental platforms are either ignorant of this fact or choose to ignore it with the belief that an emergency situation that would involve filing a claim will never happen to them.
However, these situations are much more common than you think. Rachel Bassini, who reportedly rented out a penthouse in New York City using Airbnb, returned to find that it had been completely trashed, with human feces on the floor and furniture ruined. The only opportunity she had with Airbnb, as her homeowner's insurance would not cover a guest’s party night. Imagine the level of stress for her, and the total regret for renting out her penthouse.
When she contacted Airbnb to inquire about their $1 Million Host Guarantee, a representative informed her that her home didn’t have insurance coverage through Airbnb, and her claim was initially denied. It was after the story was published on Business Insider did she receive coverage for the damages: damage control on Airbnb’s part. There are plenty of renter horror stories just like Bassini that warn people about the importance of proper insurance across the board.
Digging Into The Fine Print
Many policyholders fail to look into the fine print and take the time to fully understand their homeowner’s insurance policy and the coverage provided, along with the exclusions too. The fact is, most standard policies include a “business pursuit’s exclusion” which prohibits any renter or homeowner from operating as a business or gaining any revenue (even if you’re not making a profit) from the property.
Any company that aims to profit from residential services needs to have a business insurance policy, much like a traditional hotel. Whether you realize it or not, you may need business insurance. Without it, any claim you make with your insurance company by a paid guest will likely be denied.
Many policies also contain a section for “Rental of Premise to Others” includes the statement “on an occasional basis for residential purposes.” This can be confusing for many, who believe this implies they can provide rentals––whether an entire house or a room––on a temporary basis. What this actually means is that you can provide rental services to someone who considers that property to be their primary residence, such as subletting a room or owning several properties and taking on the landlord role.
Think of it this way, if hotels could simply buy a much lower priced homeowner’s policy, they would. The exclusion language is what makes a homeowner’s policy a homeowner’s policy, and not a commercial policy (along with other things that are beyond the scope of this article).
Bottom line, before placing ads on Airbnb and renting out a room or your home, have a discussion with your homeowner’s insurance agent, or have an agent with 1 Reason take a look at your policy to see what exclusions you’re subject to.