Don’t Wait Until You Need Insurance to Discover You’re Not Covered
One of the most complex issues you face as an Airbnb host is that of insurance. There is a tremendous amount of misinformation on this subject floating around the interweb.
Be careful when reading from host forums on media websites on this issue. Most people posting on Airbnb hosting forums know little about the intricacies of insurance. Media websites gain readers by creating “shocking” stories about Airbnb. Neither source can be trusted.
This article is intended to give you a basic understanding of how insurance works, why it is important to understand the nuances as it relates to short-term renting, and the solutions available to protect you and your guests from unforeseen incidents.
Please use the information provided here as an initial guide only. Every person’s situation is unique and if you’re unsure if your current coverage is adequate, take advantage of our short-term rental insurance review service and we’ll provide a complete review of your current policy. Our reports highlight areas of concern where you might have gaps in coverage as well as solutions available to properly bridge the insurance gaps.
Property Damage vs Liability
There are two scenarios for which you need to be properly protected:
- A guest causes damage to your home (this would include theft)
- A guest is injured on your premises
In the first situation, you would be the one filing the claim. This is a property damage claim. In the second situation, a third-party (i.e. your guest) would be filing a claim for damages. This is a liability claim.
There are several types of insurance policies available to cover residential property. Insurance companies offer policies specifically tailored to homeowners, landlords, business owners, vacation property owners, and tenants.
All of them are combined liability and property damage policies and for the most part, they contain similar clauses. But they differ in a few key areas including, most importantly for Airbnb Hosts, the issue of whether business activities are being conducted on the insured premises.
If you’re reading this article, you are most likely an established Airbnb Host or thinking about becoming one. If you own your home, you almost certainly have one insurance policy to protect it – a standard homeowners insurance policy.
Homeowners insurance policies combine coverage for both property damage and liability claims. The confusion and misinformation regarding insurance for short-term rentals revolve around the question of whether or not you are running a commercial business as an Airbnb host.
Some homeowners insurance companies will deny claims resulting from property damage caused by paying guests. They will also deny claims made by guests against hosts for liability due to the injury of a guest. These claims will be denied on the grounds that a host is running a business on the premises. Homeowners insurance policies almost always exclude coverage for commercial activities and hence this activity invalidates the homeowner’s insurance policy.
Whether you believe that short-term renting is a business or not is irrelevant. It’s what your insurance company thinks that matters. If your insurance company has a clause that excludes coverage for business activities, there is a good chance they will use that clause to deny your claim especially if it’s a sizable claim.
Read your existing policy very carefully. What you are looking for are the exclusion clauses of the property damage and liability sections. Pay particular attention to any that reference commercial or business activities. If you purchased the insurance through a local broker, have them help you. If you’re not getting the help you need, take advantage of our short-term rental insurance review service.
Here are 2 examples taken from sample policies from two of the largest providers of homeowners insurance in the United States: Allstate and State Farm:
This is a clause from the property section of an Allstate Insurance homeowners policy:
“We do not cover bodily injury or property damage arising out of the past or present business activities of an insured person.”
State Farm’s policy is not as black and white. In fact, it’s really confusing. It reads:
“Exclusions: bodily injury or property damage arising out of business pursuits of any insured or the rental or holding for rental of any part of any premises by any insured. This exclusion does not apply to the rental or holding for rental of a residence of yours on an occasional basis for the exclusive use as a residence…”
If you have a State Farm policy, you will need to ask your State Farm agent what this means. The use of the term “occasional basis” needs to be clearly defined. No one knows if this is 1 or 2 times or more.
Clear as mud right? That’s exactly what the lawyers who write these policies want. The more confusion, the more there are grounds for interpretation. The more interpretation that is required, the more lawyers are needed and the more hours are billed. Nice system, isn’t it? I’m a little cynical when it comes to the legal profession. Apologies to those of you who are lawyers.
Protection provided by Airbnb
Airbnb provides two types of protection for hosts, one to cover losses to property on your premises (Airbnb Host Guarantee) and the other to protect against liability claims you may face while operating as an Airbnb host (Airbnb Host Protection Insurance).
There is one very important thing to remember here. Airbnb will only provide protection for losses that occur during days your property is booked through Airbnb. Any claims you file with Airbnb for losses occurring on days where you are not showing a booking on Airbnb will be rejected.
Keep this in mind when a guest asks if they can book your place off the Airbnb platform. If there’s no record of a booking on Airbnb, there’s no coverage.
The same holds true if a guest requests to lengthen a stay and you take a cash payment rather than modifying the Airbnb reservation. Should an incident occur on the extended days, and you didn’t modify the reservation, Airbnb will not cover your loss.
Airbnb Host Guarantee
This is Airbnb’s property damage protection. It provides coverage for up to $1 million in the case of loss or damage to your home or belongings.
According to Airbnb, this is not insurance but a damages reimbursement program. I believe this is just a way of circumventing the need to be licensed as an insurance company. It seems to operate the same way as an insurance policy would work.
This program is meant to fill the gap caused by the business limitation on a standard homeowners insurance policy, i.e. this coverage acts like a homeowners policy with the business exclusion removed.
For a detailed summary of the Airbnb Host Guarantee, you can review our article on the subject:
Airbnb’s Host Guarantee – Peace of Mind or False Promise
Airbnb also provides a summary of the host guarantee program here:
And for further light reading, this page contains the terms and conditions:
Some key points to note about the Host Guarantee program. Making claims is a difficult process. There are many stories of hosts failing to get reimbursement for losses because they lacked either the proper proof of ownership or proof that the guest caused the damage. Proper proof of ownership requires a photograph and/or a receipt of purchase for the damaged items.
This is from Airbnb’s Host Guarantee page:
“Gather as much documentation as possible to submit to Airbnb, including photos, receipts, a police report, and any other documentation that proves ownership, damage, or estimates the fair market value of items damaged.”
So before you start hosting on Airbnb, it is a good idea to take an inventory of all of your personal effects in the house. Take photographs, list the brand and any model name. If you have receipts for items, you’re one step ahead of the game.
There are a couple of notable exclusions in this program to note. It doesn’t cover loss to cash, financial notes, securities, and precious metals in bullion form. If you have any of these items in your home, put them in a fireproof safe or keep them at a bank.
If you have valuables in your home such as fine arts and antiques, get them appraised and insured separately. The Host Guarantee program will not cover for loss or damage to these items.
Airbnb Host Protection Insurance
Airbnb’s Host Protection Insurance provides $1 million in coverage per occurrence for any liability you assume as a result of a guest being injured on your property or suffering damage to their property. Once again, this coverage is only applicable for days you have booked through Airbnb and only for occurrences on your premises or the shared premises of your building complex.
This is very important coverage for hosts as it protects you in a situation where a guest suffers an injury due to an accident on your premises. There have been a small number of very high-profile cases involving guests being injured during an Airbnb stay. Airbnb doesn’t provide any information on the resulting lawsuits from cases so we have no idea whether the hosts were covered or not.
There are a few standard exclusions to this coverage though nothing out of the ordinary. You should refrain from beating up your guests no matter how annoying they might be. Any injury you inflict on your guests would not be covered under the policy. So bite your tongue and hope your guests leave promptly!
You can find more information on Airbnb’s Host Protection Insurance is our article:
If an Airbnb guest is injured on your property, will you get sued?
Airbnb also provides a summary of the insurance here:
SHort-term Rental Insurance
There are a few companies who specialize in vacation or short-rental insurance. The best of these companies offer policies designed to completely replace your homeowner’s insurance – i.e. they remove the problem of a homeowners insurance policy excluding claims arising from business activities.
The Proper Insurance policy is a full replacement for your home insurance. It provides both property and liability insurance for homeowners who occasionally rent their primary home as a short-term vacation rental property. Proper Insurance does not cover hosts who rent out rooms within their homes. See our review of Proper Insurance for Airbnb Hosts for more information.
Comet covers liability insurance so this would not be a replacement policy for your home insurance as you wouldn’t have coverage for property damage.
Slice is a great choice for people only occasionally renting their home for short stays. They charge a nightly rate and you pay only when you have guests. This so-called “on demand insurance” is available to hosts renting out their entire home and hosts renting individual rooms within their home. The only downside to Slice is that the company is very new and their claims-paying history is as yet unknown. See our review of Slice on-demand insurance for Airbnb Hosts for more information.
CBIZ has been offering vacation rental insurance for many years through their program with HomeAway (know to many as VRBO). This is a combined property damage and liability insurance for people who own second homes that they rent to guests on a short-term basis.
Only available for Canadian hosts, Aviva offers homeowners with additional coverage for short-term rental of rooms in their primary residence.
Similar to CBIZ, Farmers offers a combined property and liability insurance policy for owners of second homes that are rented as vacation or seasonal rentals. Farmers vacation insurance policies are different from Farmers Homeowner Insurance policies. If you are hosting in your primary home, and your home insurance is with Farmers, you are probably not covered. See our article on Farmers Insurance for Airbnb Hosts for more information.
There are quite a few other options available for owners of vacation homes. If you’re an owner of a second property that you are planning to use as a short-term rental on Airbnb, VRBO or any other vacation rental site, you should not have a problem finding adequate coverage.
There are far fewer options available for Airbnb Hosts renting their entire primary and even less for homeowners renting rooms within their home. This is an evolving area because insurance companies have not yet come to grips with the phenomenon of “home-sharing” that Airbnb has created.
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