In recent years, the rise of Airbnb and other short-term rental platforms has transformed the way we travel and experience new destinations. If you are considering opening your home to guests, it is important to understand how insurance factors into your decision as renting out your property for short-term stays changes everything.
Your Existing Home Insurance Policy Could Become Irrelevant
Before embarking on your hosting journey, it is necessary that you inform your insurance provider about your plans and discuss any necessary adjustments to your policy. Traditional homeowner’s insurance policies only provide coverage for owner–occupied residences and the operation of any business, including a short-term rental business, will most likely void your coverage completely.
Additional Protection is a Must
To bridge the coverage gap between your existing homeowner’s insurance and the risks associated with short-term rentals, you need to secure additional coverage or a separate insurance policy. Doing nothing is never the right option. For example, your home could be destroyed by a fire, not caused by the tenants, but your policy would be void if the insurer was not aware of the business use of your home.
Three common options to explore are:
- Modify your existing policy: In some cases, if the volume of stays is low, your existing home insurance provider may allow you to do some rentals. You may have to pay an additional premium for this allowance, but this could be your best option. Also, if you have done some renovations to your property to maximize the rental opportunities, you may need to increase the amount of insurance you carry.
- Rental insurance policy: This type of insurance is designed specifically for properties with rentals and provides coverage for both property damage and liability. Please note that if you convert an existing long-term rental property into a short-term rental property, make sure you let your insurer know as this would be a material change that could void your policy.
- Host guarantee programs: Some short-term rental platforms, including Airbnb, offer host guarantee programs that provide coverage for certain types of damage caused by guests. However, these programs may only include damage caused by the tenants and have many limitations, exclusions, and coverage caps, so it is essential to understand their terms and conditions.
Liability Coverage
Liability coverage is a critical component of insurance for Airbnb and short-term rentals. It protects you in case a guest is injured on your property and decides to file a lawsuit. In addition to your existing liability coverage, you should consider increasing your limits to account for the increased exposure that comes with hosting guests. Adequate liability coverage can provide financial protection and peace of mind in case of unforeseen accidents.
Vacancy Considerations
All insurance policies have vacancy clauses that limit coverage if your property is unoccupied for an extended period. When you rent out your home on a short-term basis, it may be vacant more frequently than with a long-term tenant. To avoid finding our you have no coverage at all, discuss vacancy considerations with your insurance provider.
Regular Updates and Communication
Communication with your insurance provider is key throughout your hosting journey. Keep them informed about any changes to your rental activity, property upgrades, or modifications. Failing to provide accurate and updated information could result in denied claims or a cancellation of your coverage.
Hosting your property can be a rewarding experience both financially and culturally. However, it also introduces a set of unique insurance considerations. To ensure your property and investment are adequately protected, ensure you thoroughly understand the insurance implications. By taking proactive steps you can embrace the hosting experience with confidence and peace of mind.
If you want to learn more about the insurance requirements for owning a short-term rental, contact one of our brokers today.
