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This post is a guest contribution from Erika Sommer.
Airbnb has become such a household name both in the US and around the world that it sometimes seems like everyone and their mother is renting out their living spaces to perfect strangers.
The question is: should they? After all, plenty of risk and liability comes along with the easy cash usually associated with Airbnb.
Thankfully, one thing you—or your mom—can do to protect yourself from those potential pitfalls is make sure you have adequate insurance.
Airbnb In a Nutshell
You’ve probably seen an Airbnb ad or two while watching TV or scanning the Internet. You also may have heard about it while standing around the watercooler at work. But if you haven’t, or if you’re otherwise unfamiliar with Airbnb, the gist is it’s an online platform that allows you to rent other peoples’ living quarters. Or, of course, you can rent your living quarters to others.
It’s similar to a hotel or even a bed and breakfast, but more unconventional. You can rent anything from a room in a house, to an entire home, to a cottage, to an igloo.
The only problem? No governing body currently watches over this business venture. There are so many regulatory ambiguities as a result that it’s often hard to figure out how you can protect yourself from problems that arise.
Insurance is an obvious solution, but what kind do you need? Or how much coverage should you buy? This guide will help you get your ducks in a row before opening your doors to Airbnb.
Airbnb and Insurance Implications
An Airbnb home is neither a private residence nor a commercial property. Because of this, the insurance implications of renting your space in such a way can get a bit murky. To compensate, there are a few different types of policies to consider buying.
Host Protection Coverage
When you sign up for Airbnb, you automatically receive $1 million in host protection coverage. This is Airbnb’s own form of liability insurance that covers third-party claims for property damage and personal injury.
While this may seem like sufficient coverage, it’s not nearly enough—especially when you’re renting your property to guests with the potential to cause damage.
This is similar to host protection coverage but it covers the host’s personal property if it’s damaged by a guest. However, this isn’t insurance, and according to Airbnb, it doesn’t replace your own renters or homeowners insurance coverage.
Homeowners insurance doesn’t usually cover the commercial use of your home.
That said, if you rent out your home for 30 days or less per year, most insurers will let it slide. Rent your home for longer than that, though, you’ll need business property or landlord insurance.
Business Property Insurance
Should you rent your home to others for more than 30 days a year, you may have to buy commercial or business property coverage. It insures the physical assets of your business—your home, in this case—and also protects against damage to your personal property.
It also offers liability coverage for anyone who gets hurt on your property or files a lawsuit against you. And depending on your policy, it might cover loss of income expenses as well. This is where the insurance company will help you out financially should your business or home be destroyed.
Leasing your property for a few days a year won’t warrant the need for landlord insurance. But if you plan to rent out your property for extended periods of time, it would be a good idea to purchase a landlords policy. This covers of property damage, other structures, liability, and loss of income.
Just be aware that according to the Insurance Information Institute, landlord insurance costs about 25 percent more than a standard homeowners insurance policy.
However, it can be worth the extra cash. Your homeowners insurance provider could deny your claim or drop you completely should you fail to tell them you’re using your dwelling for commercial use.
So always disclose any major changes to your insurance company. Especially if you decide to rent out your property via Airbnb.
Endorsements are basically an extra cushion added to an existing policy. If you’re an Airbnb host and want that coverage, consider a “unit or residence rented to others” endorsement for your homeowners policy. It’ll bump up your personal property and liability protection while costing less than a landlord insurance policy.
Umbrella policies offer extra liability coverage that kicks in when you exceed the limits on your standard home policy. It helps cover the legal fees if one of your Airbnb tenants decides to sue you or press charges. It also covers personal injury and property damage. Coverage starts at $1 million and goes up in million-dollar increments.
Keep in mind that deductibles can be pricey and run you $100,000 or more. This is why it’s important to speak with a trusted insurance agent before purchasing an umbrella policy.
Although renting out your property through Airbnb can be nerve-racking, it doesn’t have to be—as long as you have ample insurance coverage.