You've probably heard about someone making it rich off Airbnb. Maybe you friend or neighbor's been really cleaning up by renting out their $800 a month apartment for $75 a night. And you're thinking of getting in on the action.
The math adds up. But one thing gives you pause: insurance. And rightly so. You should never enter into this kind of venture without understanding the insurance ramifications of renting out to complete strangers.
Luckily, we have that figured out for you. Below, you’ll find everything you need to know about insurance before renting your place out on Airbnb. We dive into all the different situations and make sure you get the right coverage.
Airbnb in a Nutshell
Before we get too far, let’s talk about what Airbnb is.
The online rental service lets homeowners, renters, and other property owners – you'll find everything from yurts to castles – rent their furnished property out to travelers in their city for short- and long-term stays. The complete transaction is handled through an online platform, which ensures financial protection for all parties involved.
Insurance Through Airbnb
We'll start off by considering insurance offered through Airbnb. This is a little bit of a gray area. The company does claim to provide a certain level of host protection, up to $1 million USD. Yet, the language used doesn’t portray complete confidence:
“Airbnb’s Host Protection Insurance will act as primary insurance and provides liability coverage to hosts and, where applicable, their landlords, subject to certain conditions, limitations, and exclusions. If you have questions about how this policy interacts with any homeowner’s or renter’s insurance, you should discuss your coverage with your insurance provider. Some policies protect homeowners and renters from certain lawsuits that result from injury to a visitor, while others do not. It’s always a good idea to let your insurance carrier know about rental activity in your space, even though liability arising during an Airbnb stay should be covered by the Host Protection Insurance policy.”
If you’re anything like most people, this legal language doesn’t give you the peace of mind you need to rent your home on Airbnb without speaking to an insurance agent (see Insurance Agents: What's the Point? to learn more).
This brings us to the next topic.
Coverage Through Current Insurance Policies
Homeowners and individuals renting apartments are typically required to carry some form of insurance, either homeowner’s insurance or renter’s insurance (find out Why Renters Need Insurance). Will these policies cover you while your property is available for rent through a service like Airbnb?
No. In the vast majority of cases, homeowner’s and renter’s insurance will not cover you while renting on Airbnb. These types of insurance policies carry a “business activity exclusion” stipulation. This means that any claims stemming from business activities will be denied.
While a lot of Airbnb proponents will use the language of the "sharing economy," what's going on here isn't really just sharing. Sites like Airbnb offers a way for people to make extra money. Some even make a full-time income through Airbnb rentals. As such, putting your place up on the site is considered a business activity (for more sharing insurance advice, see Making Money Through a Ridesharing Service? Here's What You Need to Know About Your Insurance).
The big issue here is the short-term nature of the rentals. Even landlord policies have stipulations that exclude business activity. That might seem strange – after all, what is a landlord doing other than renting out property for income? But long-term leases are not considered business activities, especially in the court of law when negligence and injuries come into play.
Here’s just a short list of things that will not be covered by your homeowner’s or renter’s policy:
- Property stolen or damaged by a guest
- Property of the guest that is damaged or stolen
- Property damage or injury to someone else, like a neighbor, that’s caused by the paying guest
- Building damage done by a paying guest
So, as you can see, without the right type of insurance, you can be personally held liable for a number of costs. And if that's the case, it won't take much for your side-business to turn from profitable to costly.
How to Handle Insurance When Making Money on Airbnb
If you find the potential profits far outweigh the cost of an additional insurance policy, then you’ll need to look into how to handle insurance when making money off your property on Airbnb. Luckily, that doesn’t have to be too complicated.
What you'll need in these situations is a business insurance policy. While these tend to be more expensive than homeowner’s insurance, the risks typically far outweigh the benefit of saving a little money (learn The Basics of Business Insurance).
Without some additional coverage, you will be vulnerable. If something does happen, you may potentially be on the hook for significant damages.
What About Home Sharing Insurance?
Is there such a thing as home sharing insurance?
Until recently, there wasn’t. However, more and more insurance companies have begun offering some form of home sharing insurance for hosts on sites like Airbnb.
While further research is needed, it’s worth your while to contact your insurance agent and see whether they have some form of home sharing insurance as an addition to your homeowner’s policy. If so, it could save you a lot of money.
Anytime you plan to start making money off of some venture, you should consider the insurance implications. Getting the right insurance to protect your investment is just part of doing business. The same goes for renting on Airbnb. Your current policy won't offer you the level of protection you need, and Airbnb's insurance plan leaves too many gaps.
The best thing to do is contact your current insurance agent and inform them that you plan to make money through home sharing. They'll help you look into your insurance options – both personal and commercial.
With the right coverage, you'll be all set to start making money through your Airbnb rental.