Renting all or part of your home is one way the sharing economy is changing how we live and travel. As the practice of home sharing grows in popularity, insurance companies are adapting their policies on home insurance.
What Is Home-Sharing?
Home sharing is a fairly new term and refers to situations where people share their entire home or portions of it in exchange for compensation by using a home-sharing network. Some home-sharing network examples are Airbnb, Flipkey, HomeAway, and VRBO.
A 2015 study by Pew Research showed 11% of adults in the U.S. had used a home-sharing network to stay overnight in a private residence. That number is conservative, given how popular these options are becoming.
As of 2018, 44% of U.S. adults were familiar with the Airbnb brand, and 35% reported being somewhat familiar with Airbnb services. By the end of 2019, there were more than 1.1 million Airbnb listings in the U.S. and more than 7 million globally.
Is Your Home Insured if Rented Out Through Airbnb?
The biggest problem with renting your home through 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 place ads and offer any part of your home for rent, you must inform your insurance company.
Your policy may not pay any claim due to this change in circumstance.
Do Home-Sharing Services Provide Protection?
Many people think 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.
Airbnb says its Host Protection Insurance is included with every booking and offers up to $1 million in liability protection if a guest sues.
This still doesn't change the need for you to tell your home insurer about your new situation. You need to check with them directly about what they cover. 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.
Home-Sharing Risks That Cause Claims
Your home insurance will not cover these claims unless you specifically ask to include them in your policy:
- Liability and personal accident risks: If one of your guests gets injured 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. 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, then suddenly, you have "lost income" because you can no longer rent it out or share it on the network until it is repaired.
- Criminal activity risks: Paying guests have been known to conduct unlawful activities involving prostitution and drugs. Deaths have even occurred during some rowdy parties that were not authorized by the homeowner.
Home Insurance Does Not Cover Rental Property
Even though damage may not even be related to the home-sharing activity—say a random rainstorm causes water damage, or a break-in theft occurs—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, or your policy could be rendered invalid.
Your home insurance policy was likely underwritten as a "residential only" home. Home-sharing 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 and could render it null and void.
Affordable Home-Sharing Coverage May Be Available
Insurance companies are starting to catch on to the needs of the modern homeowner who may be involved in home-sharing. Here are some endorsements 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)
- Increase Special Limits or expand the definition of "damage to property of others"
Your state insurance commissioner may be able to recommend an insurance company that is using home-sharing endorsements. Since this is a rapidly changing situation for insurers, it is worth it to shop around to 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.
Why Doesn’t Home Insurance Cover Home-Sharing?
Sometimes the insurance company will agree to keep your home insurance policy as is, with exclusions for any liability or damages arising from the home-sharing activity—on the condition you obtain specific insurance for home-sharing activity 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.
Home-Sharing vs. Commercial Insurance
Home-sharing insurance is tailored for homeowners, while commercial insurance is used for businesses.
You are much better off purchasing home-sharing insurance or adding an endorsement to your policy than buying a commercial or business insurance package for your home-sharing activity. It will likely cost less and is more applicable to how you're actually using your home.
Even if your home-sharing network provides some insurance, it is very important to read your user agreement and insurance policy to fully understand what they are or are not willing to cover. Their coverage is limited.
Collecting on Damage Claims
Depending on the provider, the home-sharing company will usually have outlined the terms of what happens when a paying guest damages your home or items in it. There is usually a dispute resolution process where the provider may become involved to help you resolve the issue directly with the offending guest. Being involved in this kind of process is a big hassle. It puts you in the middle of a mediation to try to get your money. The reality is that if you were easily going to get your money for the damages caused, 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 Ask
When renting out your home, be prepared to answer these questions:
- 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 assess the size of your business to recommend the right product for your situation.
The Bottom Line
A big advantage to having an insurance company handle your claims is that you do not have to be involved in any type of mediation. The insurance company pays you, and then they will legally pursue the responsible party. That helps you get back to where you were before the claim, so you can keep enjoying your property, or rent it out.