Each year, nearly three million property owners worldwide rent their homes through the Airbnb platform alone. Millions more rent out properties through similar platforms, generating billions of dollars in income.
But while listing your home or vacation property with a short term rentals service is easy, sorting out the behind-the-scenes details can be far more complicated. Figuring out how to handle home insurance can be particularly challenging.
But why is that, exactly? Isn’t carrying standard home insurance enough? Keep reading now to learn why the answer is a solid no and what kind of coverage you need to protect your property instead.
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House Sharing and the Gig Economy
It isn’t a fluke that house sharing has been on the upswing over the last decade. Its rise coincides with the more general expansion of the gig economy and wide-spread emphasis on “side hustles.”
Put simply, and the gig economy describes a move away from large, traditional companies. Instead of hiring big workforces employed in conventional and static jobs, companies are increasingly hiring independent or freelance workers to get jobs done. As of 2018, nearly 40 percent of American workers were engaged in the gig economy, either full- or part-time.
The system has both pros and cons for employers and workers. Among its appealing aspects are that it:
- Provides unprecedented flexibility for workers
- Provides opportunities to “be one’s own boss”
- Creates profit by putting under-utilized skills or resources that individuals already own to work
Its most widely-derided drawbacks include:
- Transfer of risk from large companies to individuals
- High levels of uncertainty
- Gaps in important protections and coverage for individuals affected by the system’s risk and uncertainties
House sharing is a prime example of both the gig economy’s strengths and weaknesses. It enables property owners to create flexible income on their own terms using existing assets.
At the same time, it forces those property owners to assume all of the risks associated with renting out their homes. Legally, it falls in a liminal space.
It is not really public or commercial activity. But it also does not qualify as a private activity. This results in critical gaps in protections and coverage for homeowners, many of whom are not aware of the problem until disaster strikes.
The Bottom Line
The bottom line is that standard insurance products such as homeowners insurance do not provide adequate coverage for home-sharing. Companies like Airbnb and VRBO offer some insurance cover to participants, but dangerous gaps remain.
What Home Insurance Covers
Almost every homeowner carries homeowners insurance on their primary residence and any vacation properties they own. No matter how comprehensive these policies are, they are designed to address the risks associated with private living. They cover:
- Dwelling protection
- Personal property loss
Importantly, however, they only cover these things under the standard usage of your property by your family. This means, for example, that if you have a friend come to stay for a few nights, your policy will protect you if they are injured on your property. Or if your friend comes over for a family party and slips and falls by the pool, the accident will be covered.
If your friend damages your property, however, you will almost certainly have to appeal to their homeowners insurance liability coverage to recoup the cost.
Any use of your home that is outside of the ordinary private use parameters may fall outside your homeowners policy coverage. So, for instance, if you host a friend’s wedding at your home, that gathering is unlikely to be covered. Similarly, if you hold a festival or other big or paid event on your property, that wouldn’t be covered either.
Renting out your home also falls outside standard private use. This causes a variety of complications and exceptions to set in. If someone pays to stay at your home:
- They are not a private guest of your family and therefore are not covered by your insurance
- They may be explicitly excluded from your homeowners coverage under a “business clause”
- You cannot appeal to their homeowner’s insurance to cover any damage they do to your property
This means that for one or more reasons, depending on the specifics of the policy, your homeowners’ insurance does not cover home-sharing situations such as Airbnb or VRBO.
Legal standards also play a role in property and liability coverage when you rent out your home.
Private homes are held to lower safety standards than public properties. Individuals who visit private properties, therefore assume a certain amount of risk in doing so.
Accordingly, this risk is built into their personal insurance coverage. If anything happens to someone visiting a private home, their insurance and the homeowner’s insurance will cover it.
The same rules do not apply in a public or commercial space. The law holds public and commercial spaces to higher standards. Owners or managers of these properties must:
- Maintain their properties to higher levels of safety and accessibility
- Carry substantial business insurance coverage
- Take responsibility for all injuries or accidents on-site
As a result, these types of properties must meet different criteria in order to purchase a policy from an insurance company. The policies they buy cost more and provide more coverage to comply with legal standards.
This presents a problem for homeowners who rent out their primary residences or vacation home. Rented private properties become dual-use. This causes them to fall in-between the public and private standards.
As a result, private homeowner’s coverage is not enough.
What About Landlord Insurance?
When homeowners insurance is not enough, property owners may begin to look at commercial options. For most, the first type of policy that comes to mind is landlord insurance.
This is a reasonable thought, as it does cover important things that homeowners or renters insurance does not. For example, it covers:
- Accidental damage caused by paying guests
- Personal injury
- Non-physical damages such as libel or slander
- Wrongful entry cases
- Wrongful eviction charges
Landlord insurance, sometimes called Vacation Rental Insurance, also covers:
- Standard physical damage from storms and other weather events
- Damage from fires and other natural disasters
- Any personal belongings of the owner stored on-site
In those ways, it does offer protection that homeowners policies do not. Unfortunately, key gaps in coverage remain. Landlord policies do not cover:
- Renter belongings
- Short-term rental situations
- Renters’ guests or their belongings
This means that if you rent out your property for less than 30 days at a time, landlord insurance will not cover you at all. If you rent out your property for more than 30 days at a time, you may still be liable out-of-pocket for:
- Lost, stolen, or damaged renter possessions
- Injuries incurred on the property by anyone other than the renter of record
- Lost, stolen, or damaged possessions belonging to anyone other than the renter of record
This can lead to enormous out-of-pocket costs.
Requiring your tenants to get renters insurance can provide a little protection for both them and you. At the end of the day, however, even the combination of renters insurance and landlord insurance is insufficient. It does not provide adequate or proper insurance for homeowners involved in short-term rentals.
Ultimately, homeowners engaged in the home-sharing market need home-sharing or short term rental insurance policies. No other type of coverage will do.
Home-sharing policies specifically cover properties that are:
- Primarily private residences
- Rented out for less than 30 days at a time
- Billed using a per-night rate or the equivalent
These policies can be purchased as endorsements added to existing homeowner’s policies. They are also available as independent policies.
In either case, they overlap with homeowners policies in ways that cover all of the gaps. This offers homeowners the protection they need while renting out their homes.
Home-sharing policies can be used on their own. For greater coverage, they can be layered with renters insurance. They may also stack with the coverage available from companies like Airbnb and VRBO.
Layering or stacking types of coverage can provide maximum protection for property owners.
Questions to Ask
When choosing a home-sharing policy, it is important to investigate:
- Whether it has a vacancy clause
- If minimum stay requirements apply
- If it covers pets and, if so, what the restrictions on that coverage are
- How much protection it provides for renter belongings
- Whether it covers alcohol consumption and related activities
The specifics of each policy will vary between insurance carriers. As such, it is important to clarify what each policy covers in order to choose the one that best fits your needs.
How to Choose the Right Insurance for Your Situation
Choosing home-sharing insurance is not something that you want to do by yourself. It can be tempting to purchase a standard policy online, but this is rarely a good idea. There is tremendous value in speaking to an insurance agent first.
Insurance agents can:
- Help you assess your personal situation and needs
- Help you determine if you should require your renters to carry renters insurance during their stays
- Advise you on how much renters insurance to require, if appropriate
- Advise you on the laws, zoning, codes, and standards specific to your area
- Assist you in identifying and filling gaps in your coverage
- Assist you in getting the best possible price on the coverage you need
Speaking to an agent doesn’t have to take long, but it can make all the difference in getting the coverage you need.
Frequently Asked Questions
Q: Does my homeowners insurance cover me when I’m renting out my property via Airbnb, VRBO, or a similar service?
A: NO. When you rent out your property or a portion of your property, you enter a legal business arrangement. That negates the coverage of your homeowners insurance policy.
Q: Do I need landlord insurance to rent out my property via Airbnb, VRBO, or a similar service?
A: NO. Landlord insurance is suitable for properties subject to long-term rental. It only offers protection in situations in which properties are rented for 30 days or more.
As such, it is not appropriate for short-term rental services or arrangements.
Q: Can I add short-term vacation rental insurance to my homeowners policy?
A: Short-term vacation rental insurance can be added to your house insurance policy as a rider. It can also be purchased independently. Talk to an insurance agent to learn which option is right for you.
Q: Is short-term vacation rental insurance expensive?
A: Short-term vacation rental insurance can be very affordable. It costs slightly more than a standard homeowners policy but much less than commercial policies.
Your actual costs will depend on factors like:
- Property size
- Property location
- Property amenities (e.g. pools, hot tubs, fire pits)
- Your rental policies (e.g. accepting pets and allowing alcohol)
- How often you are renting your property out
In all cases, however, purchasing coverage is much more affordable than handling the expenses out-of-pocket if something happens while you are without coverage.
Q: Do I still need my renters to carry renters insurance once I have a short-term vacation rental insurance policy?
A: That is up to you! Your insurance agent can help you assess the pros and cons of requiring your renters to carry their own renters’ insurance in addition to your home-sharing policy coverage.
Get a Quote
Find out just how affordable short-term vacation rental home insurance policy riders can be today. Contact us to schedule an appointment, explore your options, and get a quote. Let us help you protect your property and your future income the way it deserves to be protected.