With the growing popularity of short-term rental sites such as AirBnB and VRBO, more and more homeowners are renting all or part of their homes to paying guests.
This may be a good thing for the homeowner’s bank account, but it also creates new risks that may not be covered by homeowners insurance, the Insurance Information Institute warns.
If you’re thinking of getting into the short-term rental market, here are a few things you should know:
- Your homeowner’s insurance may cover a single short-term rental — or not.
Suppose the Super Bowl or World Cup is coming to your city and you want to make some cash by renting out your home for a week. Will your homeowner’s insurance cover you if something untoward happens while you’re not there? According to the Insurance Information Institute, it may, but don’t count on it. Some policies cover you if you notify the insurer in advance that you are housing out of town guests, but others require that you purchase an endorsement that provides additional coverage. Best advice: Check with your insurer before renting out your home, even if it’s only for a short time.
- You may need a business owner’s policy if you are renting out your home multiple times.
If you plan to use your home as a vacation rental, whether for multiple short-term guests or for a single renter over a period of several weeks, your insurer may require you to purchase a business owner’s policy because you are essentially running a business out of your home. This type of policy provides broader coverage for both property damage and personal liability if, for example, a renter is injured on the premises due to negligence on your part. (Note: A landlord policy is for long-term rentals only, and will typically exclude “business activity” as well.)
Additionally, many cities in the United States require short-term rental owners to have a business license and file a business tax return with the IRS. San Francisco requires all short-term rental owners to register with the city and carry $500,000 in liability insurance, says AirBnB. Other jurisdictions prohibit short-term rentals entirely, which can negatively impact your insurance coverage as well. Since laws on short-term rentals are constantly evolving, always check local ordinances before renting out your home.
- Your tenant’s personal property is generally not covered by your insurance
Even if you purchase an endorsement or a business owner’s policy, it’s unlikely that either will pay to replace or repair a renter’s property if it’s damaged while they are renting your home. For example, if a fire destroyed your home and its contents while it was occupied by a paying guest, your property would be covered, but the renter’s personal belongings would not. Make sure you spell this out in your leasing agreement to avoid any conflicts later on.
- Your insurance will not cover damage done by the renter
Under most homeowner’s insurance policies, damage done by a renter is not considered a “covered peril,” so the homeowner is not covered for any loss incurred. If, for example, a renter breaks an antique vase or punches a hole in a wall, you, and not your insurance, will pick up the tab. This is one reason why it’s important to carefully vet your renters and collect an appropriate security deposit in advance.
- Your liability insurance will not cover a renter’s negligence
Under the terms of your homeowner’s or business policy’s liability coverage, you are generally covered if someone sustains a bodily injury or property damage due to negligence on your part. So, for example, it a handrail on the stairwell breaks and your renter is injured, your liability coverage will pick up the cost. However, it will not pay if the renter causes damage to a third party while renting your home; the renter will need to file a claim with his insurance instead. For this reason, it’s a good idea to require all tenants to provide proof of personal liability insurance before renting them your home.
At Carmoon Group, we provide expert advice on managing your risk, no matter what your circumstances or how often they change. Whether you need homeowner’s, renter’s, commercial or automobile coverage, we can put together an affordable package that meets your needs. Give us a call any weekday between 9 a.m. and 6 p.m. at 516-292-3780 to schedule an appointment, or contact us online and we’ll get back to you at a convenient time.