Navigating Home-Sharing Rentals
With the rise of online community marketplaces, more people are renting out rooms or their entire homes for extra income. However, insurance coverage questions arise when an insurer expects a person to be using the home in one way, but later finds out the conditions have changed. To make sure you are protected, read these tips from the National Association of Insurance Commissioners (NAIC).
What are home-sharing websites?
There are now online tools for people to rent a room or their home to a stranger using an app or a website, called home-sharing solutions. Home-sharing or peer-to-peer rentals (P2P) include sites like Airbnb, Roomorama and HomeAway where guests find a property and pay for the stay like a hotel. The difference is that the property is not a licensed hotel or bed and breakfast and is often a privately-owned apartment, condo or house. Anyone can register as a host or guest.
What's the risk?
What if your guest vandalizes your property, common space in your condo or even your neighbor's landscaping? What if your guest gets injured on your property?
Guests and hosts could incur costs if something unexpected happens. Most Homeowners or dwelling insurance policies are not designed to cover accidents arising from short-term rentals. And, even if specific home-sharing or rental exclusions are included in the policy, insurance companies may deny coverage.
Hosts, regardless of whether they own the property listed, must be aware of local laws and restrictions for rental of a personal residence. Several states and municipalities have legislation or regulations restricting land or building use and requiring collection of a visitor tax.
Hosts should also review the terms of their homeowners association (HOA) bylaws. If you are renting the property you intend to list on the site, carefully read and understand the terms and conditions of your rental agreement to determine if you can host legally.
How can you protect yourself as a host?
Accidents can happen anytime, anywhere. Even if you take preventative measures, someone could trip or fall, causing injury.
Most homeowners policies provide coverage for these types of injuries. However, that is likely not the case for a paying guest on a property offered as a short-term rental.
Homeowners policies vary, but usually exclude or provide limited coverage for homeowners running a business in their home. If you list your property with any frequency, there is a good chance that activity will be defined in the policy as a home-based business.
Many policies contain a business exclusion that eliminates liability coverage for bodily injury or property damage coverage for business activities. It is typical for homeowners insurance policies to include language allowing owners to take in borders on occasion, but "occasional" is generally not defined.
To make sure you are protected, talk to your agent or insurer about your participation in home-sharing. One option may be purchasing a landlord policy which will cover your home, structures on the property, property contents (such as appliances and furniture), lost rental income due to building damage, legal fees and liability claims.
Some experts recommend only renting to guests who can prove they have homeowners, renters or personal liability insurance. Guests may have coverage under their own policy. Homeowners policies often provide minimal liability coverage (e.g. up to $1,000) for damage to property of others. Additional coverage may be available.
How can you protect yourself as a guest?
As a guest, review your own insurance policies and the policies of the rental company before booking a stay. Read your homeowners or renters insurance policy to determine if you are liable for damages to the rental property or the host’s personal items.
Also check with the home-sharing company to ensure there is sufficient liability coverage in place on the property if a loss occurs. Keep in mind equipment such as bikes or kayaks available for use while renting the property may not be inspected for safety on a regular basis, and liability coverage for such items may be limited or nonexistent.
What else do I need to know?
Airbnb currently offers a host protection insurance program to all of their hosts in the U.S. The program provides liability coverage with $1 million in coverage. Airbnb’s coverage does not include medical expense or personal liability. Airbnb also has a host guarantee that reimburses hosts for property damage caused by guests due to accident or fault, if the guest does not otherwise reimburse the host. Hosts must ask the guest for payment first. Airbnb will reimburse the host for damages up to a limit of $1 million. HomeAway, a subsidiary of Expedia Inc., does not provide insurance coverage automatically for hosts. It recommends that hosts purchase a customized policy through an insurance broker. Anyone intending to list a property or book a vacation through a home-sharing company should read the policies and contracts offered by the company.
Contact your state insurance department to find out how it is handling matters involving companies that facilitate property rentals to guests. The NAIC has adopted a white paper, Insurance Implications of Home-Sharing: Regulator Insights and Consumer Awareness, that provides additional insurance considerations for home-sharing. For more insurance tips about the sharing economy, visit the Insure U online Sharing Economy page.