The number of people who are using the sharing economy services such as AirBnB and Uber in the United States was forecasted to increase to 86.5 million by 2021, according to Statista. This means people who rent out their homes through Airbnb can expect continuous income in the years to come. Short-term rentals or home sharing can be profitable, but homeowners insurance do not automatically cover homes listed in Airbnb.
If you rent a part of your home through Airbnb, proper insurance protection is important because not having one may lead to losing your home and savings when guests become injured inside your Airbnb home. Additionally, you will be the one responsible for any home damages caused by your guests or injuries that might happen to them while they’re in your home.
Here’s a breakdown of everything you need to know about insuring short-term rentals.
Table of Contents
- 1 Is business insurance needed to rent your home?
- 2 When are home sharing or short-term rentals covered by homeowners insurance policy?
- 3 Can Umbrella Insurance cover short-term rentals?
- 4 Is Airbnb providing insurance for its hosts?
- 5 Insurance companies that offer home-sharing coverage
- 6 Final Thoughts
Is business insurance needed to rent your home?
Updating your insurance company about your home sharing activities is important because if you will not report these types of activities to your home insurance agent, your policy might be canceled. Commercial or business policies are more expensive than home insurance policies, however, it might cost you more if your policy is canceled.
According to Allstate, the perils that will not be covered by your home insurance are:
- Stolen or damaged personal property of your guest during their stay
- Your properties that became damaged or stolen by your guests
- Property damage or injury caused by your guests
- Damage made by your guests to the condo or apartment you’re hosting
You will be the one responsible if one of the things listed above happens so always check each exclusion in your policy because even if you add a business or commercial insurance policy to your home insurance policy, the circumstances listed above aren’t guaranteed to be covered. You also have to remember that if your guest stays in your home for a long period of time, then what you need is a rental dwelling or a landlord insurance policy because it is different than people engaged in home sharing.
When are home sharing or short-term rentals covered by homeowners insurance policy?
You might think that your guests or your property will be covered when something happens while you are hosting because you have home or renters insurance — you won’t be covered. Renters and homeowners insurance is not designed for commercial risks. Everyone engaged in home sharing must risk or ask their insurance agent to have their claims denied or their policies canceled if something bad happens to avoid more problems.
According to III, if you want to rent your home for a single occasion or for a one-time event only, you may be covered, however different insurers might have different requirements for you to be qualified. For instance, some may require you to purchase an endorsement to provide wider coverage or some may require you to have advance notice.
Renting your home for multiple times or for a short period but on an ongoing basis, insurance companies might consider you as a business and may require you to get business insurance specified for a bed-and-breakfast or hotel policy, says III. If you’re planning to rent out your home for six months onwards, the insurer might require you to purchase a landlord policy, so asking your agent ahead of time is very important.
Landlord insurance policy doesn’t just cover the home itself, it also covers any structures on the property such as shed or garage. It will typically cover damages caused by wind or fire, but the insurance company won’t reimburse you for normal wear and tear damages or loss of your tenants’ personal properties.
Can Umbrella Insurance cover short-term rentals?
An umbrella policy is an added protection for home and auto insurance against lawsuits and major claims. There are personal and commercial versions of umbrella insurance policies, just like what homeowners insurance policies have. Commercial umbrella policies offer additional coverage to businesses when claims exceed the limits of the primary insurance like a general liability. On the other hand, personal umbrella policies are extra liability insurance coverage for auto, watercraft, or home once the limits have been exceeded. It provides additional protection if you are at risk of being sued for injuries caused to others in an accident or for damages to other people’s properties.
Umbrella insurance can cover short-term rentals, however, you need to opt out for a commercial umbrella policy.
Is Airbnb providing insurance for its hosts?
Airbnb is now offering its own insurance policies for hosts called Host Protection Insurance (HPI). Their policy will be insured by Lloyds of London, which are available to Airbnb landlords and hosts. It is currently offered in 15 countries with a liability coverage limit of up to $1 million for injuries sustained during the guests’ stay at Airbnb listings and liability coverage limit of up to $1 million for third-party claims of bodily damage or injury caused by a guest during their stay.
Here are some liabilities that aren’t covered by HPI:
- Assault and Battery
- Lead or Silica
- Loss of Earnings
- Intentional Acts
- Chinese Drywall
- Personal or Advertising Injury
- Act of Terrorism
- Communicable Diseases
- Fungi or Bacteria
- Liquor Liability
- Pollution and Asbestos
- Electronic Data
Disadvantages and Limitations of Airbnb’s Host Protection
Here are the potential risks of HPI:
- If the guest accidentally put fire and burned down your home, HPI will only cover up to $1 million. Any cost or damages beyond that limit in your responsibility already. However, if you have umbrella insurance, it can cover the exceeding loss.
- If you file a claim, HPI may cover the condominium or apartment damage caused by your guests. However, coverage isn’t guaranteed.
- You are only covered when there are guests staying in your home. If your guests got injured or made some damages on your property and they’ve arrived earlier or overstayed, you will not be covered if they file a lawsuit on you.
Property claims may be covered by Host Protection insurance, however, it is not guaranteed. HPI is not an insurance product and hosts don’t pay additional fees for it since Airbnb covers every booking in their listings. The terms and conditions may change, so make sure that you know the updated version. Remember, HPI is not an insurance product and there’s a lot of exclusions to this policy so you still have to purchase rental property insurance or home-sharing insurance to an insurance company. Here are some of HPI’s limitations:
- You must report within 14 days about the damages.
- Rather than replacement cost, the payout may be actual cash value on some items.
- You must comply with all the requirements of the HPI contract prior to the damage or loss that happened.
- You must resolve the property damage with your guest first, before contacting Airbnb for reimbursement.
- Pets, personal liabilities, securities, and cash are not covered.
- The damage or loss should have occurred during the guests’ booking date or stay. Damage that happened after or before their stay is not covered.
Insurance companies that offer home-sharing coverage
As the home-sharing industry increases its popularity and growth each day, many insurance companies are adapting and expanding their insurance coverage to meet the needs of homeowners who rent out their homes for short-term through Airbnb. We’ve listed some insurance companies that offer home-sharing coverage below:
- Verisk Analytics ISO – A subsidiary of Verisk Analytics, Insurance Service Offices Inc., offers options to address the risks the hosts experience when they are listing their home on home sharing platforms like Airbnb. Their home sharing coverage includes vandalism, damage to guests’ property, liability, and theft.
- AllState – The company’s specialty coverage, which is also called HostAdvantage, protects the personal properties of the Airbnb host when guests are currently staying in your home. If a burglar breaks in or if the guest steals something that you own, HostAdvantage will cover your loss. Another instance is when a guest accidentally damages your carpet or furniture, this coverage will protect you. However, they don’t offer liability protection for home-sharing.
- Liberty Mutual Fire Insurance Co. – If the host shares their home for more than 31 days, they can extend their current policy.
Airbnb has a Host Protection Insurance with a liability coverage limit of up to $1 million, however, it doesn’t cover all the perils included in a standard homeowners insurance and it’s not really an insurance product — it’s just a guarantee made by the company for their hosts in case problems might occur.
Before you list your home to Airbnb, protection against damage and personal liability claims is important. Choosing the right insurance coverage should be done thoroughly. Even if you are planning to rent your home just for a single occasion, you should still report it to your insurer and don’t deny the fact that you’re home-sharing. Yes, you might save money by not getting the right insurance for Airbnb since you will just rent your home for a short period of time, but when something bad happens, you will be unprotected and responsible for the damages caused by strangers renting in your home. On top of that, your homeowners policy will be subjected to cancellation as well.