It has become commonplace for homeowners to rent their houses out for a short period of time (less than 30 days) through short-term hosting platforms such as Airbnb. This can be a great way to earn money. The vast majority of such rentals are uneventful, but now and again tragedy can strike. In one widely reported case, for example, an Airbnb renter in Texas was killed when a tree holding up a backyard hammock he was laying on collapsed onto his head. This case makes clear that, before you become a short-term rental host, you should think carefully about your liability for any injuries someone has while staying at your home and whether you have adequate insurance coverage for property damage or loss. Here are some of the key questions to consider.
Accidents can happen even in the best maintained homes. If you slip and fall on the stairs in your own house and break your leg, you can probably turn to your health insurance to cover the costs. But what if the same injury happens to one of your renters? If this renter files a lawsuit against you, claiming his broken leg was caused by your negligence in not keeping the stairway properly lit, the cost of hiring a lawyer to defend against the lawsuit will run into many thousands of dollars. And this doesn't include the cost of any legal settlement or court judgment. So who will pay?
Some short-term hosting platforms provide liability insurance to their hosts, others don't. Airbnb's Host Protection Insurance program provides primary liability coverage for up to $1 million per occurrence in the event of third party claims of bodily injury or property damage. This coverage is subject to a $1 million cap per listing location. This insurance may also provide coverage if a guest damages building property. This often includes claims filed by a landlord against a host who has rented out his or her unit. Hosts need not pay extra for this coverage, it's part of the service Airbnb provides and is included in its basic fee. This insurance is "primary coverage," meaning it provides coverage up to the $1 million limit whether or not the host has other insurance coverage.
Other hosting platforms provide no insurance coverage. For example, HomeAway does not provide liability insurance coverage to protect you against the type of renter accidents described above. Instead, HomeAway recommends that hosts obtain their own short-term rental coverage from the insurer CBIZ that has created a specail combination homeowner's and short-term rental insurance policy.
Your own insurance policy may provide some protection when you're renting out your home on a short-term basis.
If you own your home or condominium, you undoubtedly have a homeowners' insurance policy. Homeowners' insurance provides coverage for damage to or loss of your home and possessions and liability insurance in the event an accident occurs on your property. So, if a renter suffers an injury in your home, and you’re properly insured, your homeowners' insurance company will be required to pay for your defense and any settlement or damages up to your policy limits. However, without insurance, you’ll have to pay all these costs out of your own pocket.
Before renting your home to anyone, you should read your policy carefully. Homeowners’ policies vary from insurer to insurer and from state to state, but they almost always exclude coverage for homeowners who are running a business in their homes. If you earn money by frequently renting out your home to short-term paying guests, your insurer could claim you’re running a hotel or bed and breakfast business and deny coverage if one of your guests has a problem.
Most homeowner's policies do provide coverage if you rent your home only one time per year, for a single special occassion like the Super Bowl. However, some insurers may require advance notice of such rentals or require you purchase an "endorsement" (an add-on to your homeowners policy) provide more coverage for the renter. Other policies may provide coverage if you rent your home only for a limited number of days per year--four weeks is a common limit. Such coverage may also be subject to a notification requirement or be conditioned on purchasing an endorsement.
Call your insurance company and specifically ask if your policy covers short-term rentals by paying guests. Make clear how often you plan to rent out your home, whether you’ll be at home while renting, and how many people you’ll be hosting. Send a follow-up email outlining your insurer’s answer, and ask for confirmation so that you have everything in writing.
What should you do if your standard homeowners' policy doesn’t provide the coverage you need? If you continue to live in your home and simply rent out a room, you can typically obtain "unit rented to others" coverage by paying extra. This may be all the additional coverage you need. If not, you’ll need to obtain a landlords' insurance policy that provides coverage for short-term guests. Such coverage is more expensive than a homeowners' policy—anywhere from 15% to 25% more, depending on the level of coverage. Contact an insurance broker or agent who handles such coverage.
If you’re a renter, renters' insurance provides coverage in the event your personal possessions are destroyed or stolen, and liability protection if someone is hurt in your dwelling. Your landlords' insurance only covers the building structure, not your personal property or liability. Thus, for example, a renters' policy provides coverage if a guest in your apartment trips and falls and suffers and injury or damages your property.
However, renters' insurance is subject to the same limitations as homeowners' insurance. It ordinarily provides coverage for tenants who have occasional guests, but not for those engaged in the business of renting out their apartments to paying guests.
What happens if a guest damages your home or your personal property? If the loss is covered by your homeowners' or landlords' policy, you’ll be reimbursed by your insurer. However, if your homeowner's or renter's policy doesn't cover your short-term rental, your insurer may refuse pay you for your loss. To fill this gap, some hosting companies have begun to offer their own insurance or reimbursement plans. For example, Airbnb has a “host guarantee” in which the company promises to pay up to $1 million to a host for property damage caused by a renter. However, Airbnb makes clear on its website that the guarantee is “not insurance,” and does not cover cash and securities, collectibles, rare artwork, jewelry, pets, or personal liability. HomeAway offers damage protection insurance of up to $5,000 for an extra fee.