Insurance for Short Term Rentals

Insurance for Short Term Rentals

Does a host need special insurance coverage? It’s not that simple. While a standard homeowner’s policy might, might cover you in the event of something catastrophic or … untoward; it also might NOT. Our experience has taught us that it’s best to treat a short-term rental operation like a business, and as such, it makes sense to consider specialty insurance products. In this video Evan and Phil speak with the co-founder of Proper Insurance, Darren Pettyjohn on the subject.

And while we know that there are probably more interesting ways to spend 12:00 of your time, this is pretty important for folks currently hosting short-term guests or who might be thinking about investing in short-term rental properties. Here’s a quick synopsis…

The Big IF…

Many traditional homeowners policies have exclusion clauses for business activities, and many would consider renting a room or a property out through Airbnb or one of the other platforms as a business activity. An insurance company could therefore deny a claim and your coverage could effectively be invalidated. Darren highlights a recent, ongoing legal case, that of Emily Richer vs. Travelers Insurance as an example of what could potentially go wrong here. Ms. Richer has filed suit against her insurance company for systematically denying claims stemming from damage that she claims had nothing to do with her short-term rental activities; claims that she says were denied simply because she was operating an Airbnb.

The Platforms’ (Airbnb’s) “Guarantee”

Airbnb advertises limited liability coverage for hosts who use the platform. As of this post, there is very little published documentation that Airbnb has ever covered any claims. Take a look at Airbnb’s own explanation of the coverage offered, and anyone can see some pretty large holes. Darren gives an example, one that although unlikely, is absolutely plausible in a short-term rental scenario. Let’s say two guys in their 20’s book your rental for a weekend to celebrate a birthday party. They both get sauced. They return back to your place at 1AM and are, understandably, lively. Your neighbor, who lives alone with his 27 cats and doesn’t like you or the fact that you’re hosting short-term (we’ll call him Rupert), steps out to confront the two young revelers. Words are exchanged, chests puffed out, threats made and finally one of your guests pushes (or punches, bites, scratches, kicks, spits on) your neighbor, and the next day Rupert sues you, the property owner, for $1,000,000. Will Airbnb’s coverage protect you? No. No it won’t. But a specialty business policy might.

Benefits to Your Business

There’s another substantial benefit to treating your short-term rental like a business, and insuring it as one—Loss of income coverage. The evolution of this mind-set, from homeowner to business-person, is something we’ve had the opportunity to witness frequently over the course of the last year. Folks begin hosting and then they quickly become hooked. The additional income generated from a short-term rental can be substantial, and consequently can become something folks depend upon, something folks bank upon. Let’s say something happens, an act of God, a tree falls on your roof in a storm. Roofers are booked because the storm was a real doozy, and unloaded golf-ball sized hail on homes across town (we operate in Colorado for the most part, this is really, really plausible), and it’s a month before your roof can be repaired. During that period you can’t book your rental out, and you’re worried about the thousands of dollars in lost revenue. A standard homeowner’s policy sure won’t help you out here, but a specialty product like those offered by Proper might…once again treating your rental as it really is, as a business.

While we don’t make additional insurance coverage part of our management agreements, we strongly suggest new hosts speak with a qualified insurance expert to learn more. Your home is important, your investment property is important, your new business is important. It’s always best to protect these to the greatest degree possible.