UPDATED: Jan 25, 2019
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With the arrival of companies such as Airbnb and VRBO short-term rentals have skyrocketed in popularity in recent years. These rentals have become a go-to for many travelers and an attractive way for homeowners to make some extra cash. But as the number of short rentals increased, so did the concern over the types of home insurance; your basic homeowner’s policy simply wasn’t designed for that type of risk.
Fortunately, the insurance industry has responded with new products and endorsements that make it easier for hosts to get the coverage they need. But as homesharing coverage options grow, it is important to look more closely at the options and know what you’re buying.
The Basics of Short Term Rental Home Insurance
Known as homesharing in the insurance industry and beyond, short term rentals rentals generally operate somewhere in between a true rental and an owner-occupied residence.
A homeowner’s insurance policy is designed to protect against the risks of an owner-occupied residence, while a landlord or rental insurance policy is designed for the risks of a residence occupied by a tenant. When a residence is straddling both of those risks, it becomes a more complex insurance issue.
If you live in your home and also rent out rooms or a portion of the home on a short-term basis, or if you have a second home that is sometimes owner occupied and sometimes a rental (vacation rental), you need to keep the coverage provided to a homeowner while also covering the additional risks of having a renter in your home. These include liability and property damage.
When related to a renter in your home, these things are not covered by most homeowner’s insurance, and furthermore, your insurance company may refuse any claim whether rental related or not if they discover you are operating as a short term rental without their knowledge. They may also choose to cancel your homeowner’s insurance as a result of rental activities that violate the policy contract.
Specifics of Insurance For Short Term Rentals
In response to the problems presented by short term rentals, Airbnb and other similar companies offer liability insurance to their hosts. Airbnb’s policy provides $1 million in liability coverage for hosts in the event of a lawsuit brought against them by a guest, and their Host Guarantee provides the same amount in property damage coverage. While this provides some peace of mind, it is not comprehensive coverage, and it doesn’t change the fact that you could be violating the terms of your homeowner’s policy.
Airbnb’s Host Guarantee only covers the portion of the home that is being rented out, and it has a long list of exclusions. If, for example, a guest starts an accidental fire in a rented room, and that fire spreads to the rest of the house, Airbnb will not pay for any of the loss outside of that room. That will be the responsibility of your homeowner’s insurance – which could, as we already noted, deny the claim if you’re not insured for homesharing.
What all of this means is that insurance protection provided by Airbnb or any other hosting service is a nice thing to have – but your homeowner’s insurance policy still needs to be designed to protect you in full.
There are a few very specific things to look for when it comes to coverage for short-term rental of your home.
- Liability – every homesharing policy or endorsement should protect you from liability risks related to renting you your home.
- Property Damage – Your policy should provide coverage for both property damage done by a renter to your home as well as for damage to the property of others by a renter.
- Loss of Rents/Income Coverage – This will help pay the rental amount you could have earned during repairs from a covered loss, so you don’t miss out on income.
Homesharing coverage is a relatively new product in the insurance industry, so we looked for companies that have embraced the need for this coverage and actively seek to attract and assist hosts with their needs.
While we normally seek out companies that offer coverage across the country, many of the homesharing programs are still in the process of being rolled out; we looked also for companies that do already have a program in some areas with plans to expand to other areas in the near future.
All of the companies we chose have programs that provide the right coverage and support, and all of them also have a good reputation and sold financial backing. Finally, since most of the options available are endorsements, we looked for companies that have great homeowner’s policies to provide a base for that endorsement.
Our Top Recommendations
All three of these companies can help you with homesharing insurance. One may be better than the others for your particular needs, but most hosts will find a good option among them.
One of the biggest insurance companies in the country, Allstate was also one of the first to step up to the plate and provide homesharing insurance. Their HostAdvantage program is offered in several states, with ongoing expansion. The program is an endorsement that can be added on to an Allstate homeowner’s policy.
On top of a solid and comprehensive homeowner’s program, Allstate adds the liability and property damage protection you need for short-term rentals. The endorsement is advertised as costing as little as $50 a year, and it comes with added benefits like a discount off the use of a cleaning service for your rental.
Liberty Mutual is a rare company that offers a base homeowner’s insurance policy with some homesharing coverage already built in. The base policy includes coverage for short-term rentals of less than 31 days of the policy period, providing $5,000 in less of rents and $500 for damage to the property of others.
If you rent more frequently than that, you can add the HomeSharing endorsement to kick up your coverage. The endorsement doubles both of the limits above and covers you beyond the included 31 days. Add to these options the fact that Liberty Mutual is a highly rated home insurance company, and you have a solid pick.
If you want to go with a company that specializes in short-term rental insurance rather than treating it as an endorsement, Proper is a good choice. Underwritten by Lloyd’s of London, Proper writes only vacation rental and Airbnb-style insurance policies. They combine rental and homeowners in one policy without the need for an endorsement.
A policy with Proper comes with fewer restrictions and flexible coverage limits; many of the limits are far beyond what you would see with a standard homeowner’s (for example, loss of rents coverage can be up to $250,000), making them a comprehensive choice. If you rent your home out frequently and depend on it for income, Proper is worth a closer look.
Shopping for Short Term Rental Insurance
As with most insurance, it can never hurt to start by checking in with your current insurance company. As the popularity of homesharing endorsements grows, more companies are offering them, and you may not need to switch. That said, be prepared to be informed that your current policy will not cover you. You may need to switch as soon as possible.
You may need different coverage depending on how your home is used. If you do not live there at all, and use it solely as a vacation rental, your approach to shopping for insurance should be different from someone who lives in the home and rents out a portion of the house or rents the house out only occasionally when they are away.
Full-time vacation rentals likely need a policy dedicated specifically to that type of use. You will want to start your insurance search by comparing vacation rental policies rather than standard homeowners.
A primary residence or even part time residence that is not used solely as a vacation rental will need the coverage of a homeowner’s policy, with the right endorsements added on. You can comparison shop from any insurance company that offers the endorsement.
The Bottom Line
Do not count on your homeowner’s insurance policy to protect you from the risks of short term rentals – get the coverage you need before you decide to start operating an Airbnb or other hosting service. With the options for coverage growing all the time, this process will become a lot easier in the future. Thankfully, however, there are some very good choices out there today that are custom-designed for the expanding short term rental market.
For a list of companies that we recommend, visit our Best Insurance Companies page.