Airbnd, and other similar "home-sharing" services, are becoming a popular way to make money by renting out your home or condo to short-term paying guests while you are away.
But before you agree to let any paying guest stay in your home, you should give some serious thought to the risks associated with these types of situations (for example, if a renter damages your property or if someone gets hurt during the stay) and look into whether the insurance coverage you have will provide protection for these risks.
Although most homeowners policies differ from insurer to insurer and from state to state, almost all homeowners policies exclude coverage for homeowners who are running a "business" in their homes. Thus, if a homeowner earns money by renting the premises to short-term paying guests, an insurer could deny coverage for a claim arising from injury or damage while an Airbnb user is renting your home or condo.
"Homeowners" coverage is not for "businesses." Most homeowners policies define "Business” as a trade, profession or occupation engaged in full-time, part-time or occasionally, or any other activity engaged in for money or other compensation (barring certain exceptions), and exclude property damage and liability coverage if a claim arises out of a business that the insured is engaged in. As an example, below is an exclusion found in a Farmers Next Generation Policy issued in California:
We do not cover bodily injury, property damage or personal injury arising from, during the course of or in connection with any past or present business engaged in by any insured or conducted from any insured location…
If an insured with the above Farmers Insurance policy had not read their policy, decided to make some additional money by renting out their home through Airbnb, and the Airbnb renters caused property damage to the insured’s home, it is likely that Farmers would deny the claim based upon the above exclusion once it determined that the damage arose from an Airbnb rental.
To address this issue, and give potential Airbnb hosts “peace of mind”, Airbnb offers its hosts something called Host Guarantee which purports to provide property “coverage” (at no additional charge) with a $1 million limit.
There are however reasons why Airbnb hosts might not be getting much “coverage”:
- Prior to contacting Airbnb for reimbursement, the homeowner must attempt to resolve the property damage issue with the guest;
- The damage must have occurred during the booking period. Damage occurring before or after the booking period is not covered;
- The host must be in compliance with all requirements of the Airbnb contract prior to the loss;
- The damage must be reported within 14 days;
- Payout may be actual cash value on some items, rather than replacement cost;
- Not covered: cash, securities, pets, personal liability and common areas;
- Additionally, if a guest causes property damage or theft, many exclusions in the Host Protection Coverage expose the host to monetary losses. Out of pocket could easily be higher than the rental fee.
Airbnb also offers a liability protection program (Host Protection Insurance (HPI)). This insurance is described as “coverage of up to $1,000,000 per incident for Airbnb hosts in the US…if a guest is accidentally injured anywhere in a host’s building or property during a stay.”
That description and the program summary unfortunately leave the host with more questions than answers. A few gaps include:
- Coverage is limited to $1 million per occurrence; $2 million per location. The policy aggregate is $10 million for all insured locations in the U.S. Shared limits are problematic to say the least.
- Coverage is in excess of any other available coverage. The host must submit the claim to their Homeowners insurance and the claim must be denied by that company before Airbnb’s insurance will pay. (Presumably, the Homeowners insurance may also be cancelled for business use.)
- The summary document lists these other “key” exclusions: (1) intentional acts (of the host or any other insured party), (2) loss of earnings, (3) personal and advertising injury, (4) fungi or bacteria, (5) Chinese drywall, (6) communicable diseases (7) acts of terrorism, (8) product liability, (9) pollution, (10) asbestos, or lead or silica, and (11) insured vs. insured (i.e., host sues Airbnb or vice versa).
- The coverage is limited to an actual stay, not a booking. No show — no coverage. Overstay or early arrival? No coverage.
What if a guest burns down an entire condo building worth $2.5 million? Even if there is coverage for this scenario, anything beyond the initial $1 million offered by HPI would be the responsibility of the host. If the host’s Homeowners policy declines to cover them, so will the host’s personal umbrella policy.
Some insurers, such as Allstate, are beginning to offer home-sharing protection endorsements or stand-alone policies. In the case of Allstate, its proposal is still pending regulatory approval. It is yet to be seen if such products will successfully fill in the gaps in the insurance marketplace for short term home-sharing.
I would strongly suggest that homeowners review the insurance policies they currently have and call an insurance broker to discuss the insurance options that are available in the marketplace before blindly deciding to share your home for a little extra disposable income. This way, you won’t be caught off guard if you do decide to rent your home through a home-sharing service like Airbnb and return home to discover that you need to make an insurance claim.