How to Get Affordable Airbnb or Home-Sharing Host Insurance
The sharing economy provides us with many opportunities to supplement income and enjoy experiences in ways that never before existed. The affordability and community around the sharing economy make it a pleasant way to get what you want, while someone else also benefits. Renting your home through home sharing is one way the sharing economy has changed how we live and travel, but there are also serious implications on home insurance. The good news is that due to the popularity of home sharing, insurance companies are starting to adapt and if you speak to your insurance company about your home sharing, you may be able to get coverage through an endorsement instead of finding yourself uninsured in a major claim.
According to Pew Research, 11 percent of Adults in the US have used home sharing network like Airbnb, VRBO or HomeAway to stay overnight in a private residence.
What Is Home-Sharing?
Home-sharing is a fairly new term. Home-sharing refers to situations where people share their entire home or portions of their home by using a home-sharing network in exchange for compensation. Some home-sharing network examples are Airbnb, Flipkey, Homeaway, and VRBO among others.
25 percent of college graduates and 24 percent of Americans who live in a household with an annual income of $75,000 have used home-sharing platforms, according to Pew Research.
Sharing Your Home Through Airbnb or Other Home Sharing Services FAQ
With the friendly convenience of home sharing services on the rise, one question about "Home-Sharing" from hosts that comes up very often is one about their home insurance:
“Is My Home Insured If I Rent It Out to Guests Through Airbnb?”
The hosting experience and guest experiences of using home sharing sites are often so comfortable and inviting, that for many years people didn’t even think to ask this question.
You go on an official site, become a member, choose your spot, and you're ready to vacation. For hosts renting out their homes, listing the property is often the first step, once the rental actually occurs, insurance questions are not really top of their mind. However, as these services have become popular, more and more people are starting to become aware of the risks involved with home sharing. The media has also helped increase awareness that when something goes wrong, people may face a problem with their home insurance claim.
Home Insurance Problems If You Rent Your Home Through Home Sharing Networks
The biggest problem with renting your home through these home sharing networks is that you immediately change the use of your home from "residential only" to a sort of "rental income" property. Even though the rentals may not be frequent, the moment you are placing ads on home sharing networks and offering your whole home, or a room in it for rental, you need to advise your insurance company because your policy may not pay a claim due to this change in circumstance.
Don't Home Sharing Services Like FlipKey, Airbnb or Others Provide Home Insurance?
Many people think that because they are renting out their home or rooms in their home through a legitimate service with a good reputation that they are protected against damage. Although some of these services can offer optional, or even included protection, what they offer is not home insurance.
Advise Your Home Insurance Company About Airbnb or Other Home-Sharing Rental Arrangements
Your home insurance company has not underwritten your policy to allow the hosting or home-sharing activity. Although the home sharing network may offer you some coverage for specific circumstances, it is not home insurance and you have an obligation to advise your home insurer about this new activity if you want your home insurance to be valid.
If you're wondering what the hosting company "insurance" is covering, you need to ask them.
Even in cases where the hosting company offers a million dollars of coverage, this doesn't change the need for you to tell your home insurer about your new situation. You need to check what they cover with them directly and speak to your personal insurance representative to get proper counsel about your home insurance and what kind of coverage you will need for the new risks.
What Are the Risks With Home-Sharing?
12 percent of home-sharing users report that they have had a negative experience at some point or another.
Home Sharing Risks That Cause Claims and Are Not Covered By Standard Home Insurance
- Liability and Personal Accident Risks: If one of your guests injures themselves on your property, they may hold you personally responsible. Your homeowner policy covers you for personal liability but would exclude the liability arising from these rental activities.
- Personal property damage risks: People have accidents and it may happen that your guests accidentally damage your home, or cause damage like a fire. The damage may be small or large, but there is always a risk.
- Lost income risks: Your home is damaged or uninhabitable due to some kind of loss and then all of a sudden you have "lost income" because you can no longer rent it out or share it on the network until it is repaired, so the actual loss is more than just the damage to the home, it's the lost income too.
- Criminal Activity as a result of hosting paying guests, a rare situation, but it can happen.
Besides the above risks that could go wrong related to the guest's use of your home, all the same, other risks that can happen while you don't rent your home out can still happen while it's rented, so there is actually an elevated risk due to your home sharing activity, and this is why home insurance companies will not cover you on a regular homeowner policy form.
Even though damage may not even be related to the home sharing activity, like in the event of a random rain storm where water damage happens, or a break-in theft, this bad luck requires insurance coverage to protect you just like it does every other day.
The most important thing is to get insurance that will protect you. For this, the insurance company needs to be aware of your circumstances.
Home Insurance Endorsement Options That You Can Add to Your Policy
Your home insurance policy was underwritten as a residential only home. Home sharing changes that which puts your insurance contract and coverage at risk because the insurance company never agreed to insure the peril of occasional home rental or home sharing. Commercial activity such as renting rooms or renting out the whole house is not covered on your policy, in fact not telling the insurance about your rental activity could render your whole policy null and void either because you did not disclose the real use of your home, or because there has been a material change in the risk.
A material change in the risk means that you have changed the use of the home from a regular homeowner situation, to a situation where you have unknown guests staying in your home and you are profiting from the rental. Don’t risk your home insurance by not reporting your activity to your insurance representative, agent or broker. Even though the home sharing network may provide you with some coverage, it will not change the need for you to report the change in your use of your home to your insurer.
Affordable Coverage May Be Available to You for Airbnb Rentals and Home Sharing
As of 2017, insurance companies are starting to catch onto the needs of the modern homeowner who may be involved in home-sharing. Here are some endorsement's you should ask your home insurer about if you are considering renting your home through a home sharing network.
- Exclude home-sharing but still allow you to keep traditional homeowners coverage
- Add coverage for home-sharing activities (the best option)
- Increasing Special Limits or the definition for the section on "Damage to Property of Others"
Shopping Around May Save You Money on Your Insurance Costs
If your insurance company can not help you, you can always contact your state insurance commissioner who may be able to recommend an insurance company that is using home-sharing endorsements. Since this is a rapidly changing situation for insurers and more and more are starting to adapt, it is worth your while to shop around and see what the best kind of insurance package will be for you. Even if you had a policy that covered you a year ago, in another year the industry may have adapted and made the situation more affordable or favorable for you.
Who Needs Home Sharing Insurance If Renting Through Airbnb or other Home Sharing Sites?
- If you have listed your home to potential guests on a home sharing site or network like Airbnb, Homeaway, Flipkey, VBRO, etc.
- If you rent out your home or rooms in your home to guests for short-term stays
- If you rent out your home to different people throughout the year or offer guests rooms to stay in during their travel
- If your rental arrangements are not based on annual leases
Why Doesn’t Home Insurance Cover Home Sharing Services or Guest Hosting Like Airbnb?
Home sharing programs are a great alternative to traditional hotels and many people really enjoy the experience.
Unfortunately, the home insurance policy does not allow for coverage where there are rooms for rent, boarding services or home sharing. If you want to have this covered you need to:
- Change to a different kind of insurance policy
- Obtain the permission of the insurance company for your specific case (and be sure to get their agreement in writing), or request an endorsement be added to the policy to cover home sharing. Sometimes if you are only renting for a few days a year, they may even agree to ensure without charge. It's a case by case scenario.
Sometimes the insurance company will agree to keep your home insurance policy as is with exclusions for the liability and damages arising from the home sharing activity on the condition that you obtain specific insurance for home sharing activity either through a specialized program, or commercial policy.
Only your insurance company can tell you what they are willing to do, so you will need to contact them to find out your options. Every insurance company is different. Some companies have adapted to the new needs of our society, and others have remained strict on the guidelines. Getting advice from an insurance professional is very important to make sure you have the right protection.
Two Different Kinds of Home Insurance for Hosting or Rental and How to Save Money
- Commercial Insurance (used for businesses)
- Home-Sharing Insurance (tailored for homeowners)
You are much better off purchasing a Home-Sharing Insurance or adding an endorsement to your policy than a commercial or business insurance package for your home sharing activity. Before Airbnb and other sharing services became popular, insurance companies didn’t know how to handle the risk. Underwriters categorized it as commercial use property the moment you started renting out any portion of your home. Things have changed so if you currently have commercial insurance, it may be time to shop around because you'll get better coverage and there's a really good chance you'll save money.
Beware of Coverage Gaps in Home Sharing Insurance Provided By the Network
It is very important to read your user agreement and insurance policy provided by your home sharing network to fully understand what they are or are not willing to cover. Their coverage is limited.
Collecting on Damage Claims When You Rent Out Your Home Through a Home Sharing Program
Depending on the provider, the home-sharing company will usually have outlined the terms of what happens when a guest who has rented our place damages items in our home or damages to your property. Usually, there is a dispute resolution process where the provider may become involved to try and help you resolve the issue directly with the guest that caused the damage. Being involved in this kind of process is a big hassle. It puts you in the middle of a mediation to try and get your money. The reality is that if you were really going to get your money for the damages caused to your home easily, in all likelihood the guest would have offered to pay for the damage and it would never go to the mediation or claims stage.
Checklist of Questions the Insurance Company Will Want to Know About Renting Out Your Home
- Do you use a Home-Sharing network like Airbnb? Or are you renting out rooms or property using your own methods?
- How often do you rent out your home or rooms in your home?
- What is the duration of the rental or hosting? Is it daily, weekly, monthly
- How many days a year do you rent?
- How much income do you make, or plan to make from rentals? This question can help the insurance company recommend extra optional coverage to you like loss of rental income, and may also help them assess the size of your business to recommend the product right for your situation.
Why Getting Your Own Home-Sharing Insurance or Endorsement Is a Good Idea
One of the advantages of having your own insurance company handle your claims is that you do not have to be involved in this type of scenario. The insurance company pays you, and then they will subrogate against the responsible party. It helps you get back to where you were before the claim so you can keep enjoying your property or rent it out. Let the insurance company deal with the hassle.