Wait What! My Insurance Does Not Cover Property Damage From Airbnb Rental?

Airbnb rental properties and using a property as a short-term rental have revolutionized how some are building wealth (or at least absorbing some cost of homeownership). As of 2017, Airbnb offered 7 million rental properties around the world. Generating this kind of activity does not, however, come without its complications.

Homeowners Insurance

For the folks out there considering renting your property on Airbnb, take some time to consider any insurance implications of renting your property. In the normal context, homeowners insurance is fairly straightforward: If your property is damaged, then (barring an exclusion of coverage), you receive funds to repair the property. So what exactly changes when a short term renter damages your property?

Unfortunately, by renting the property to guests, you are fundamentally changing the characteristics of the property. The property is no longer a residential homestead of yours. Instead, the property is now a piece of commercial property (or at least not residential homestead property). Why do you care? Well, the problem is that most homeowners insurance basic policies specifically exclude short-term rentals from coverage. This means that if a property is damaged as a result of it being used as a short-term rental, then the insurance may not cover the damages. So how can you fix this issue?

What Use Are You Making Of The Property?

Determine what kind of use you are going to make of your property. If you are only going into the short-term rental game once, then contact your insurance company and see if they offer a one-time event coverage. If you are regularly going to be renting out part of the property, then you likely need to look into purchasing business insurance which will provide more coverage than your standard homeowners insurance. If the rentals will be consistent, then you may also want to consider purchasing landlord insurance to cover. Also, keep in mind purchasing landlord insurance to insure your dwelling, other structures, and personal property used to service the rental.

Review Your Insurance Policy

All of this boils down to what coverage you have now. Be sure to check your current insurance policy and see when and what context a rental property is covered. In the majority of cases, your standard homeowners insurance will not provide coverage for damages. If you determine you do not have coverage, then you will have to make the determination as to whether Airbnb is still profitable in your situation given the increased cost of insuring the property.

Airbnb is a great way for a property owner to generate some extra income. However, there are no shortcuts. Truly calculate your income potential by adding in your increased insurance costs. Then and only then determine if Airbnb is right for you.

When it comes to working with our clients, we love what we do. We are happy to help discuss your liability potential and business matters with you. If you have questions, please contact our Real Estate Team today!

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