Top Short-Term Rental Insurance Mistakes To Avoid

By Hanna Ogle, VP of Personal Lines (Watkins Insurance Group)

The sharing economy is here to stay. From Uber to AirBNB, the sharing economy is beginning to be a regular part of daily life. I can drive downtown, but I would rather use a ride sharing service to avoid the confusion of one-way streets, hard to find parking, and heavy pedestrian traffic. When going on vacation, would you rather stay in a traditional hotel or be immersed in the culture of your destination by staying in home right in the heart of things? It’s not for everyone. But for many, the sharing economy is the preferred way to travel and do business.

But what challenges does this sharing economy present to those participating in it? The answer is “many,” and one of the most familiar of these challenges is the insurance ramifications. Unfortunately, most participating in these sharing economy programs may not be fully aware of how their current insurance policies may or may not properly cover them should something happen. There are multiple pitfalls to short term vacation rentals. The good news is that there are options to bring back the peace of the mind your insurance is supposed to provide!

So what if you have chosen to rent your home on an occasional basis?

What Are the Risks?

The two primary risks you face are liability exposures (lawsuit) and property damage exposures. When you rent your home on a short-term basis, you face challenges in both areas. Regarding property, there are often limitations for vandalism of your
home and theft of your contents when the home is being used as a rental.

And many home policies exclude any business-related activities…so what if your renter leaves the stove on and burns the entire house down? The real problem here is that we don’t have a firm idea of how most insurance companies will respond to these claims. Will they assert the business activity exclusion? Will they not? Time will tell.

In regard to your liability exposures, the unknown may be even more significant because your potential exposure basis is not defined, as it is with a property asset. How much will someone sue you for? This is not something we can clearly or definitively predict! Because your home policy likely excludes business activities, there is an endless list of potential exposures that are likely to be uncovered.

What if a guest injures themselves on your property? What if one of their guests are injured?

A Hidden Pitfall: Loss of Rental Income

While we are exploring your potential for loss due to using your home as a short term rental, here is one exposure for loss you may not have ever considered. What if you have your home scheduled for rental and a totally unrelated activity creates a situation where your home can’t be used?

Your loss of rental income is not likely to be covered by your standard home policy because again, it’s a business activity. Maybe there was a big storm and part of your roof is now located down the street. You were counting on the income from an upcoming rental, which is now going to have to be cancelled. Would you want coverage for this loss of rental income?

The good news is that there are solutions out there, but to secure them and gain back your peace of mind, you can’t ignore the risks. There are programs available that provide the proper types of insurance coverage to mitigate these exposures. Some insurance companies have add-on coverage you can easily add. Others, and in fact most, won’t be able to accommodate short term rentals.

But have no fear! There are companies that have met these challenges and created solutions. At Watkins Insurance Group, for example, we have a great product custom-built for short-term rentals that provides personal liability, commercial general liability coverage for lost rental income, and coverage for the dwelling.

Does it cost more than a traditional home insurance policy? The answer is likely yes, but often not that much more. I would argue that the gain in peace of mind is well worth the small additional investment! My recommendation is to talk to your insurance consultant to find out if your policies are going to respond in the way you expect them to and if not, ask for solutions. And get back into the sharing economy!

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