Proper Insurance is a licensed insurance agency providing vacation home insurance that is backed by Lloyd’s of London, a specialist insurance market. The Virginia-based company operates in all 50 states through a network of insurance brokers. Proper Insurance has sprung to prominence in the past 2 years as the first company to offer a comprehensive property and liability insurance policy that covers homeowners renting their primary homes as rentals on Airbnb, VRBO, and other short-term rental booking websites.

 

Homeowners Insurance vs Business Insurance vs Vacation Home Insurance

It’s important to know the difference between the different types of insurance available to cover residential properties. The difference is determined by how the property is being used, as a primary home, a home plus business, or a vacation rental property.


Homeowners insurance

Homeowners insurance is designed to provide financial protection in the event of an unforeseen loss. The policy covers 2 main types of loss: 1) damage to your property or contents, and 2) your liability for damages to a third party. A simple description would be that it provides financial protection arising out of accidents that happen on your premises.

Small business insurance or home-based business insurance

This type of insurance is written to cover the specific risks of business activities and includes 3 main components: 1) damage to your business property, 2) liability protection should the business be sued, and 3) business interruption coverage.

Vacation home or second home insurance

Insurance policies covering vacation or second homes are essentially the same as primary home insurance policies. The difference is the price. Insuring vacation homes is typically more expensive because they remain vacant a large percentage of the time. Vacant homes are more susceptible to loss because no is around to prevent or mitigate damage. If the vacation home is rented to guests, insurance can be extended to include business income protection making the vacation home insurance policy a combination homeowners/business policy.

 

Why doesn’t my homeowner’s insurance policy cover my Airbnb hosting?

Renting rooms, or your entire primary residence is considered a commercial activity, i.e. a business. Earning a few thousand dollars on the side from renting out your spare space may not seem like a business to you but your insurance company won’t agree. Your homeowner’s insurance policy almost certainly excludes coverage for business activities. This means that any losses you or your guests suffer due to property damage or injury, while the guest is staying at your home, will not be covered.
 

Doesn’t Airbnb (or VRBO) provide insurance to cover short-term rentals?

Both companies provide liability insurance. If you get sued by a guest after they are injured on your premises, Airbnb and VRBO will provide coverage. The problem with their coverage is that they are concerned with their own liability first. If a guest is injured on your premises, they will most likely sue Airbnb or VRBO in addition to suing you. These companies are more concerned with protecting themselves than protecting you which is why you are not a named insured on the policies and have no policy rights, i.e. your defense is completely out of your control.

Should a guest accidentally burn your house to the ground, Airbnb claims to provide some coverage under their Host Guarantee program. But this isn’t insurance, it’s a loss reimbursement program administered by Airbnb. Many hosts have tried and failed to gain compensation through this program. It’s a far from an adequate solution for protecting your home and you should not rely on it as a substitute for home insurance.

 

The Proper Insurance Solution for Airbnb and VRBO Hosts

The Proper Insurance solution is essentially a business insurance policy that has been adapted for use as a homeowners insurance policy covering short-term rental business. Whereas standard home insurance policies specifically exclude business activities, Proper Insurance has addressed the issue by modifying a standard commercial business form to cover the combined business and homeowners risks faced by Airbnb short-term rental hosts.

The major difference between the policy offered by Proper and a vacation home insurance policy is that it provides coverage for short-term rentals of primary residences. Purchasing a policy from Proper Insurance means you are covered whether you are renting your home to guests or staying there yourself, i.e. it replaces your existing homeowner’s insurance policy.

The policy not only covers your short-term rental business but also provides all of the benefits of a home insurance policy such as coverage for personal liability and damage to personal property.

 

Coverage Summary

Personal and Commercial Liability

The policy provides primary coverage for up to $1 million per occurrence for personal or commercial liability. You are insured as an individual or as a business should your short-term rental business be set up as an LLC or other business structure. The liability coverage is a standard ISO form coverage liability assumed for third party bodily injury, property damage and medical payments to others.

Buildings & Contents Damage

Your property is insured at Replacement Cost Valuation with Special Form All Risk Coverage (highest available coverage in the US) up to the limits of insurance you purchase on the policy. This is for the entire structure (including roofs) and the contents inside. Proper Insurance and Lloyd’s of London remove the standard Actual Cash Value limitations from the policy for contents. They also completely remove any vacancy provisions giving you 100% of coverage limits even during times of vacancy. Standard exclusions on Special Form All Risk Coverage still apply such as Flood, Earthquake, Mechanical Breakdown, Wear and Tear, etc. Another added benefit is that you have optional coverage for Increased Cost of Construction after loss as well which is not standard for insurance policies on second homes.

Business Interruption Expense

Loss of rental income is covered in the amount of the actual loss amount. The policy also covers any extra expenses you might occur should you need to rent alternative accommodation while your property is being repaired or rebuilt.

  • Policy Highlights
  • Commercial Package Policy: coverage for building, contents, liability, and income.
  • Building & Contents: special cause of loss (all risk) with replacement cost valuation (new for old).
  • Liability: $1,000,000/$2,000,000 in commercial general liability (extends beyond premise with no deductible)
  • Income: actual loss sustained business income coverage with no time limit.
  • Additional $1,000,000 in personal liability when rental “doubles” as primary residence.
  • Liability coverage enhancement for animals/pets & liquor.
  • Liability coverage extended over amenities: pools, bicycles, small watercraft, golf carts, recreation area.
  • Property coverage enhancement for theft and damage caused by a renter.
  • Vacancy clause removed with no standard occupancy restrictions.
  • Ordinance or law enhancement up to full building limits.
  • Underwritten by Lloyd’s of London, AM Best’s Rated A.

Underwriting Criteria – Private Rooms vs Entire Spaces

For Airbnb hosts renting out rooms on their primary property (a situation known as “homesharing” or “roomsharing”), the Proper Insurance solution may not work for you. The Proper Insurance underwriters will not insure hosts who rent out private rooms and allow guests to share their common areas such as the kitchen and bathroom.

Proper Insurance requires complete separation between the host premises and guest premises. It is, therefore, an excellent solution for Airbnb hosts who are renting out a secondary dwelling unit (e.g. an apartment built over a separate garage), or other self-contained rooms that have their own entrance, bathroom, and kitchen facilities. As long as guests do not have access to same facilities used by the homeowner or host living at the house or other guests, then Proper Insurance is an excellent option.

Why don’t Proper Insurance cover “home sharing” situations?

According to Michael Grimland of Proper Insurance:

“The risk associated with room sharing is enormous, and we are working on a product tailor-made for that situation, which should be available by the end of the summer. However, currently, we do not write policies when room sharing is present and do our best to identify and deny the risk in the sale when it arises.”

By room sharing, Michael is referring to the home sharing situation described in the previous paragraph.

Michael goes on to further explain that: “As soon as you co-exist with another individual, you’re interacting with them outside of the business transaction. As your insurer, we have control over the risk we take when we insure your house/contents/income and we have an underwriting process that ensures it’s a risk we would like to take on. Underwriting for someone’s potential actions is much more difficult, and the stakes are higher (think how easy it is for someone to claim sexual assault, and how expensive it is to defend in court). So at the moment (again, we are expecting to bring our room-sharing policy to market soon) we only insure risks that we can effectively underwrite for.”

 

Pros and Cons of Proper Insurance for Airbnb Hosts

Proper Insurance is an excellent solution for homeowners wish to rent out their entire property on Airbnb or VRBO while they stay elsewhere. It’s also a solution for people with secondary dwelling units (also known as “month-in-law” apartments) that have separate entrances and separate facilities from the main living space. The policy is very comprehensive, providing broader coverage than you can acquire with a standard homeowners policy.

While the policy costs more than a standard home insurance policy, the added business coverage more than makes up for the added cost. Proper Insurance would appear to be a very good option for Airbnb and VRBO hosts renting out their primary residences or self-contained units on their premises. It is not an option for hosts who homeshare and like to co-mingle with their guests.