Offering a home as a lodging option for travelers can be profitable. However, many homeowners seeking to bring in extra income by renting their homes don’t consider the serious financial risks they’re taking. Many often assume their homeowners’ insurance policy provides protection for short-term rentals. The truth is hosts may be liable for property damage or injuries sustained on their property when occupied by renters. Most homeowners’ policies contain property and liability exclusions around using homes for business purposes, including property rental. This includes exclusions for vandalism and theft of personal property while rented. Home-share sites may offer to repair damage caused by a guest, but such promises aren’t an actual insurance policy, and homeowners must carefully adhere to the stated requirements in order to obtain reimbursement from a home-sharing site.

There are plenty of scenarios that should make any homeowner stop and count the potential cost of home-sharing or a home stay gone wrong. A fire that occurs while a home share renter is on premises could lead to hundreds of thousands of dollars in uncovered costs. Those costs could be elevated further if a renter suffers serious injury or if the fire damages nearby property. One host suffered damage to a $120,000 piano in their property after the rental unit was used to host a wild fashion photo shoot.⁵ Another property in Nebraska suffered $2,000 in damage after guests rented the unit for a “fight night” party.⁶ Further West, a Sonoma, California home destroyed by an accidental fire cost an estimated $1.8 million to rebuild. While the owner’s insurance policy paid out $600,000, Airbnb declined to pay the $1 million claim the owners filed with the company.⁷ In general, homeowners insurance does not provide coverage for personal accidents/property damage, lost income, or damage resulting from criminal activity while a property is rented, unless specifically included in policy language.

Home-sharing and home stay sites generally offer assurances about reimbursement for damages, but the coverage and conditions may be too limited to actually help the homeowner. For example, reimbursements may be based on the current cash value of an item rather than replacement value, and liability coverage may have insufficient limits to provide meaningful protection. It’s also easy for homeowners to confuse share site host guarantees with insurance; however, guarantees often require that you first attempt to recover damages from the guest before filing any claim with the home-share site.

As the home-share rental market continues to grow, the insurance industry is working hard to keep pace. Given sufficient notice, some insurers have often been willing to extend coverage for rentals for one-time events, such as major sporting events or political conventions. Many carriers allow insureds to add home-sharing coverage for an affordable additional premium and others offer a specific add-on endorsement. A few carriers have even embraced the emerging peer-to-peer rental industry and provide special endorsements referencing the Airbnb, HomeAway, and FlipKey systems, while expanding the special limits of liability on items like jewelry and electronics.

When evaluating coverage for a home-share rental, it’s important to know the insurance market’s restrictions. Some carriers may avoid replacement cost on the contents, while others limit the maximum number of rental days per year. Carriers may also require that the homeowner engage the services of a rental agency or property management company. When inquiring about coverage for home-share rentals, homeowners should also be able to provide information about how often the property is rented, if a home-sharing network or site is used, how many days the property is rented each year, the duration of the typical stay, and how much income is generated by the rental. Providing this information can help carriers accurately assess the owner’s needs and recommend the right product for each situation.³

BOTTOM LINE

Home-sharing is part of the tourism economy that is here to stay. Clients offering rental properties on sharing sites need to confirm if their homeowners policy covers home-share or short-term rentals. If not, many insurers offer very affordable endorsements to cover such rentals. It’s crucial that those venturing into the home-share marketplace understand their insurance policy details and needs in order to obtain the best possible coverage at the right price. Contact your CRC Group producer today to discuss how we can meet your clients’ home-share rental coverage needs.

CONTRIBUTORS

• Shaun Carloss is the Florida Homeowners Underwriting Manager in the CRC Orlando office and a member of the personal lines practice advisory group.
• Allison Talus is the CRC Group Personal Lines Practice Leader – Western Region, and a member of the Personal Lines Practice Advisory Group.

ENDNOTES

1. About Us, Airbnb, December 31, 2022. https://news.airbnb.com/about-us/
2. Too many rich people bought Airbnbs. Now they’re sitting empty, Time, November 2, 2022. https://time.com/6223185/airbnbs-empty-short-term-rentals/
3. Sharing Accommodation Market: Forecasting Growth and Revenue and also a Projected CAGR Figure is Given as 4.1% from 2023-2030, MarketWatch, June 1, 2023. https://www.marketwatch.com/press-release/sharing-accommodation-market-forecasting-growth-and-revenue-and-also-a-projected-cagr-figure-is-given-as-41-from-2023-2030-2023-06-01
4. Beyond the Booking: 150+ Unique Airbnb Statistics, Marketsplash, May 19, 2023. https://marketsplash.com/airbnb-statistics/
5. Fashion insiders throw wild bash at pricey Airbnb, damage $120k piano, New York Post, December 23, 2022. https://nypost.com/2022/12/23/fashionistas-throw-wild-affair-at-airbnb-damage-120k-piano/
6. Airbnb guest allegedly holds ‘fight night’ in Benson residence, owner reports at least $2,000 in damages, Omaha.com, May 23, 2023. https://omaha.com/news/local/crime-courts/airbnb-guest-allegedly-holds-fight-night-in-benson-residence-owner-reports-at-least-2-000/article_14058506-bea3-11ed-b328-e7d2208c2bed.html
7. House Fire Prompts $1 Million Dispute with Airbnb, NBC Bay Area, May 16, 2019. https://www.nbcbayarea.com/news/local/fire-prompts-1-million-dispute-with-airbnb/190719/
8. Host Liability Insurance, Airbnb, 2022. https://www.airbnb.com/help/article/937