Insurance Challenges of Listing Your Home for Vacation Rental
With the massive popularity of short-term hosting platforms such as Airbnb and Vrbo, more and more people are considering turning their home into a vacation rental. However, there are insurance challenges of listing your home for vacation rental that you need to be aware of.
There are four types of insurance policies you’ll come across when searching for vacation rental insurance. They are:
- Homeowners Insurance
- Landlord Insurance
- Short-Term Rental Insurance
- Business / Commercial Property Insurance
In this article, we’ll have a look at the four different types and propose the best insurance solution for your vacation rental. We’ll also address why you can’t only rely on the free insurance cover provided by companies like Airbnb to cover your insurance needs.
Homeowners Insurance
Many people think their existing homeowners insurance policy will be sufficient if they want to list their home for a short-term vacation rental.
Renting out your property to strangers increases your insurance risk profile.
Homeowners insurance is intended for an owner-occupied property. In most cases it provides little or no protection when you’re renting out your home, even on a short-term basis.
In addition, there’s a huge risk your insurance company will drop your cover if they find out you’ve been renting out your home and didn’t notify them.
Insurance companies typically view vacation rentals as a business activity that’s not allowed under a standard homeowners insurance policy.
There are generally two exceptions to the above statement:
1. Letting friends or family stay in your home while you’re away.
If you have friends or family occupy your home while you’re away on business or vacation, it’s generally not seen as a business activity. Usually it shouldn’t affect your homeowners insurance policy.
2. You have obtained insurance approval for an “occasional” vacation rental.
Your insurance company may allow you to occasionally rent out your home for short periods of time, normally not exceeding 30 days. You have to get their approval in writing before you proceed.
Many insurance companies will issue an endorsement (or rider) to your existing homeowners insurance policy to this effect.
A key consideration is, are you planning on renting out your home regularly or occasionally? If you plan to rent out your home on a regular basis for short periods of time, it would constitute a business. If this is the case, your homeowners insurance policy might not cover you.
Don’t want to rent out your primary residence but your second home instead?
Your insurance company might treat it as a business activity if you rent out your second home for more than 14 days a year.
Summary
Your homeowners insurance policy wasn’t designed to cater for vacation rental insurance.
If you only want to occasionally rent out your home, you may succeed in obtaining permission from your insurance company. However, you have to inform them of your intention and get their approval before you proceed.
The golden rule is to be open and frank with your insurance company about your intentions. Don’t do anything that might compromise your homeowners insurance policy and put you at risk.
Landlord Insurance
Landlord insurance applies when you’re renting out your second home or investment property for long periods of time. It’s designed with tenants in mind who will stay several months or longer in the property.
It’s normally structured to include two different types of cover – property and liability insurance. Both are intended to help protect you from financial losses.
Landlord insurance typically doesn’t cover short-term rentals.
Tip: If you’re a landlord, insist your tenants take out renters’ insurance. It should cover their property in case of damage or theft, and provide the funds to relocate them in case your property becomes uninhabitable.
Short-Term Rental Insurance
Short-term rental insurance, or vacation rental insurance as it’s sometimes referred to, has become popular in recent years. It’s often a good insurance solution if you want to list your home, or especially your second home, for vacation rental.
Vacation rental insurance typically caters for three scenarios throughout the year, namely:
– People on vacation or travelling on business.
– Homeowner vacations.
– Periods where the property is unoccupied.
Not all insurance companies offer this type of insurance, but some specialize in comprehensive short-term rental insurance.
Note: Vacation rental insurance policies are usually more expensive than standard homeowners insurance policies. This is normal considering the property sits vacant more often and the risk of claims being filed is higher.
Business / Commercial Property Insurance
Frequent short-term vacation rentals are viewed by insurance companies as high risk. This is especially the case where the property is often only rented out for one night at a time and has a high occupancy rate.
In such cases you may require business insurance, specifically a hotel or bed and breakfast policy. You would normally not have to go this route if you just list your home for vacation rental.
Isn’t the Free Insurance From Airbnb Enough?
Airbnb offers a Host Guarantee and a Host Protection Insurance.
Airbnb’s Host Guarantee is a property damage protection program. It provides up to $1 million in property damage protection if the host’s property or belongings are damaged by a guest or their invitee. As mentioned by Airbnb, Host Guarantee is not insurance.
Host Protection Insurance is a liability insurance program that provides up to $1 million in liability coverage. It’s for the host’s “legal responsibility to a guest or third party that gets hurt or has their property damaged due to an incident related to an Airbnb stay.”
Although both Airbnb’s Host Guarantee and Host Protection Insurance are good services, they only offer you limited protection. For example, water damage to your property caused by a burst pipe won’t be covered as it wasn’t caused by your guest.
Airbnb doesn’t offer you the comprehensive insurance you need for vacation rentals.
Conclusion
There are many insurance challenges of listing your home for vacation rental.
The four types of insurance policies you’ll come across when searching for vacation rental insurance, that we covered in this article, are:
Homeowners Insurance
Homeowners insurance is not designed to provide cover for vacation rentals. If you only want to occasionally rent out your home it may be sufficient. However, you should obtain approval from your insurance company first.
If you want to rent out your home on a regular basis you can’t rely on homeowners insurance to cover your insurance needs.
Landlord Insurance
Landlord insurance doesn’t typically cover short-term rentals.
Short-Term Rental Insurance
Short-term rental insurance is the best option if you have a second home or investment property you want to rent out.
Business / Commercial Property Insurance
Business insurance is the right solution for a hotel or bed and breakfast. It’s not recommended if you want to list your home for vacation rental.
Always discuss your needs with your insurance company and be as specific as you can. There’s a huge difference between the “occasional” vacation rental and “regular” vacation rental. The better your insurance company understands your needs the more likely it is they’ll offer you the right solution. And if they can’t help you, shop around.
Unfortunately, sometimes insurance companies only show their true colors once you file a claim. They’re happy to collect your premiums but the moment you file a claim, they try to wiggle out of it. It’s at times like these that you need a public adjuster on your side who looks after your best interests.
At Avner Gat, Inc. we’ve earned our reputation as a trusted public adjuster over 15+ years. We protect homeowners from the games and fine print that insurance companies are known for.
Call us at (818) 917-5256 if you feel your insurance company isn’t giving you the best settlement offer you’re entitled to under your policy.
