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Insurance for Short-Term Rentals

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Posted On: 08/03/2016

Question:

With the children gone we now have a big house with lots of extra space. Rather than sell and downsize we would like to take in boarders on a nightly basis. What insurance coverage do we need? Is such coverage part of our basic homeowners policy or is additional coverage required?

Answer:

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There's no doubt that large numbers of property owners have begun to monetize their homes. Airbnb, which describes itself as “the world's leading community-driven hospitality company,” said that in 2016 it booked more than 1 million people worldwide on New Year's Eve alone, including 47,000 in New York and 25,000 in Miami.

Airdna, a site that tracks the short-term rental market, said that at the end of 2015 it had “identified a total of 550,000 Airbnb listings in the U.S. California leads all states with 125,803 total properties listed, with New York in second place at 94,976 Airbnb rentals.”

Regardless of popularity, property owners must still be concerned with insurance because a paying overnight visitor can slip, have an accident or get bitten by the dog. Whether you can get insurance coverage for such guests ranges from easy to impossible.

“Every carrier has underwriting guidelines that are unique to them and their business model,” says Jason Vaughan with Affordable Home Insurance in Miramar Beach, Florida. “Some carriers will accept a one-night rental. Some carriers may be fine with a three-night rental, but not a one-night rental. Some carriers may deem anything other than an annual rental ineligible.”

And some insurance companies, it should be said, may not cover in-home rentals at all. If suitable coverage is unavailable, property owners may need a different insurance company.

For its part, Airbnb has a “$1,000,000 Host Guarantee” program to protect homeowners against certain hazards, however the company points out that “the Host Guarantee is not insurance and should not be considered as a replacement or stand-in for homeowners or renters insurance. Hosts may want to consider independent insurance to cover valuable items like jewelry, artwork or collectibles, which are subject to limited protection under the Host Guarantee.”

The question of insurance with renters who sublease a room for a night is different. Since tenants do not own the property, they cannot insure the structure. For this reason both the property owner and the tenant should get appropriate coverage before accepting short-term rentals. For details and specifics, speak with insurance brokers.

One can imagine there will be situations where landlords will not want overnight tenants or will only allow paid guests under certain conditions such as a higher rental rate or even a share of the revenues. Look for standard leases to be revised to include language showing how short-term rentals are to be handled.

Peter G. Miller is author of "The Common-Sense Mortgage," (Kindle 2016). Have a question? Please write to peter@ctwfeatures.com.

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