A year ago, Stephanie and I switched our rental apartment above the garage from a traditional long-term rental to a shorter Airbnb rental. In preparation for the change, we looked into the question of homeowners insurance.
Would our homeowner's policy continue to work with Airbnb?
Could we get a supplementary policy?
What was covered by Airbnb's own insurance and host guarantee programs?
The short answer is: As an Airbnb host, you need additional insurance. If you host with an actual frequency, your current homeowner policy is likely to become invalid and Airbnb's own protection is inadequate.
As a lawyer who checks insurance documents on a daily basis, I have a high tolerance for wading through contractual balderdash, which masquerades as a top-class legalist. I actually dug out and read the insurance documents for each insurance policy that would cover our home and Airbnb.
I'll tell you why and how we switched our homeowners insurance to a policy designed specifically for short-term rentals.
Disclaimer Required: I've looked at the insurance policies that were available to us, but I don't know which ones might be available to you. For many reasons, your situation may not be the same as ours. This was my advice to our own family and may not apply to you, but you are welcome to listen.
And if you're here and interested in hosting with Airbnb, you might also want to see the following:
Wait, but doesn't Airbnb have its own host insurance?
Yes. And no.
Airbnb offers two types of protection for hosts, Host Protection Insurance and Host Guarantee. Let's look at each one.
Host Protection Insurance is real, albeit limited, liability insurance that protects hosts under certain circumstances if sued for personal injury or property damage caused by an Airbnb guest's stay. It also covers some special cases where public areas of the property, such as a lobby or shared stairs, are damaged during a stay.
There is a long list of exclusions, but the most important thing for us is that it specifically does NOT cover the loss or damage to "property you own, rent, or occupy", except in very tight circumstances.
What does Airbnb Host Protection Insurance cover?
Let's say a guest walks across the veranda of your Airbnb rental with his laptop. It slips, loses its grip and breaks both the arm and the laptop. He is suing you. Host Protection Insurance should pay for his injuries, broken laptop, and part of the legal costs. However, if the flying laptop follows an unfortunate path and a window breaks in the rental, this damage to your property is not covered.
In Airbnb help, this is not considered a big deal as the host guarantee protects you if a guest damages your property.
What is the Airbnb host guarantee and what does it do?
The host guarantee is a promise that Airbnb makes to a host that covers some types of property damage caused by a guest or a person that the guest invites to the hotel during a stay booked through the Airbnb platform.
Let's go back to the flying laptop and the broken window. The broken window in the rental should be covered by the host guarantee. This is a fairly clear case for reporting.
Our Airbnb apartment is located above a separate garage, about five meters from our house. What if the laptop slipped over the porch, flew over the ledge and to our house and the window in our house broke instead of in the rent? The host guarantee explicitly excludes payment for a very long list of things, but the really important ones for us are:
- “Damage to property that is not in, on or on covered accommodation.
- Properties that belong to a party other than you and that you do not control. "
The rental window is therefore covered, but since our main residence is not “in, at or in a covered accommodation”, the host guarantee does not cover the cost of repairing the window in our own house.
What if a guest turns a cigarette outside or lights a kitchen fire that is spreading? The actual rental apartment is covered. However, the host guarantee seems to exclude any coverage for damage to the garage that is under the rental, or to our own house next door or to the neighbors on the hill. None of this is covered.
But doesn't your normal homeowner's policy cover this type of damage?
Ours wouldn't. And I have never seen any in our area.
Before we started Airbnb, we had a homeowner policy with an addendum for long-term rental of the home. The policy and addendum precluded any claims related to or related to doing business, other than the business of renting the home for a period of at least one month each.
The effect was very clear. If we rent the apartment for less than a month and the short-term tenant accidentally burns it down or starts the water and floods or stumbles on the stairs and breaks a leg, our insurance company would not pay anything. Even worse, if the fire or flood damaged our own house, they wouldn't pay anything.
Damages from short-term rents are expressly excluded from coverage. Even worse, if the policy had the best interpretation for the insurer and our first Airbnb guest was accepted, it could have voided all our homeowner insurance coverage, regardless of the source of the claim!
This is not because we were badly insured. Almost every standard homeowner policy has a similar limitation if the primary house and the rent are on the same property. The details may vary, but I've seen guidelines that are invalid for the following reasons:
- You rent a building (or a trailer or a boat or a tree house or anything) on your property for less than 30 days
- You rent it for less than 30 days without the written approval of your insurance provider
- You rent it for less than 30 days without written notice to the insurance provider
- You have more than 3 nights short-term rental during an insurance year
- During an insurance year, you have short-term rentals of more than 10 nights
- Your short-term rental income exceeds $ 1,000, $ 5,000, or $ 10,000 during an insurance year
The worst part is that when I interpreted the policies, I couldn't rely on my own local insurance agents, the supposed experts. During our search for an Airbnb-friendly homeowner policy, I spoke to three different insurance agents who obviously didn't understand the limitations of the policies they sell.
One of them came over as soon as I pointed out the relevant contract language and had it confirmed by the insurer.
Another took several attempts before she realized that the policy she was offering would not work.
An agent is still certain that his policy would have covered us. I hope he never sells it to someone who actually has to make a claim.
So the Airbnb coverage doesn't work, and a normal homeowner policy or rental addition doesn't work. What else is there?
Sure, we needed something else.
Of course, replacing our pre-Airbnb policy required some additional research. Since the beautiful, wooded foothills in which we live are part of a forest fire land, many insurance carriers do not cover the area at all. We had a limited number of companies to choose from, and exactly zero of them would write a policy covering short-term rentals.
So we had to keep looking for non-traditional options.
Traditional carriers with special partners.
Some traditional transport companies have endorsements, direct supplementary insurance or can arrange for additional cover from a specialist insurer. Last year, Farmers was the only airline in our region to offer short-term supplementary insurance through its Foremost Insurance Group.
I've heard that Allstate, USAA and Liberty Mutual will offer home sharing or short term rental insurance in some markets starting in 2019. None of them insured our forested hills, so I didn't do any further research. However, this is a hopeful sign.
Insurance built specifically for short term rentals
CBIZ and Proper Insurance each specialize in comprehensive short-term rentals and offer insurance that has been taken out specifically for properties rented through Airbnb. The same guidelines apply to short-term rentals on homeaway, VBRO and similar platforms.
CBIZ and Proper guidelines are almost identical. Do not pay particular attention to the tiny differences that highlight the sellers. For most hosts, the differences don't matter. However, if the space you rent from Airbnb is a space in your own home, there are some differences to consider.
The policies of these two companies completely replace your current homeowners insurance with a new policy that includes specific short-term rental coverage. Both have strong underwriters and will likely be there to pay claims when you need them.
Insurance on demand
There are a handful of interesting new options with on-demand insurance. The idea is that you can activate coverage when you have a guest stay and deactivate it when you leave. This works best for hosts who rarely have guests, as the cost increases with every additional night that a short-term rental is given.
Since our rent is almost always occupied, this was not an inexpensive solution, but an interesting idea for rare hosts. Slice appears to be the best known of these new options.
What did we choose?
After researching way too much time, talking to other hosts, arguing with insurance agents and reading policies, we replaced our homeowners insurance with a new CBIZ policy. It covers better than our previous guideline, very clearly covers the potential risks of Airbnb hosting and costs about the same as Proper, but has been around for a long time.
Farmers and Foremost together also had an adequate coverage package, but cost too much.
Slice was an interesting on-demand option, but paying for so many nights a night made it by far the most expensive. It could work better for less frequent hosts.
And what does it cost?
Since it's only about real numbers, this is as real as it gets.
Our old homeowner's policy had a total annual cost of $ 1,425.
The new CBIZ policy has a total annual cost of $ 2,835.
Yes. It's about twice the price. I know. It's crazy. However, this increase is not solely due to short-term rents.
The policy, which used to cost $ 1,425, is no longer offered to anyone in our county. Our former insurer, like many others, has withdrawn from Northern California. A couple of consecutive years of $ 30 billion in forest fire losses make California a difficult place to take high risk.
The companies that stay in our region raise their prices significantly, so our overpriced CBIZ policy is not much more than our neighbors pay for their policies without short-term rental coverage.
Don't rely too much on our experience.
While this can be a useful background for hosts and those interested in Airbnb, it is not definitive for your situation. Insurance is regulated and sold differently in each state, and your mileage may vary. Hopefully you have more options than we do. Hopefully we'll all have more options soon.
As the market expands, insurance companies hurry up (as much as insurance companies can ever hurry) to understand how to assess the risk of short-term rents. I expect new products to arrive and evolve over the next few years as insurers begin to gain actual loss experience.
When you think of hosting now, it is important for you to realize it
- Airbnb's own insurance and host guarantee are not enough
- You may be voiding your own homeowner's insurance by offering short-term rentals.
Caution. Learn more about your current policy. Find out what options are available in your area.
We love hosting with Airbnb, but your home is probably your most valuable asset and the place you live. Don't put it at risk by making uninformed insurance decisions while setting up an Airbnb side income. Be smart. Make sure that you and your home are protected.