Insurance Questions When Renting Out Your Home or Building Short-Term
Bob Barker. Ellen DeGeneres. David Letterman. Oprah. And now you?
Oh wait, you’re not that type of host. You’re an Airbnb host. Or a VRBO or Sonder host.
And you need business insurance.
Renting out your place while you’re away or buying property for the purpose of renting is a great way to cover your rent or mortgage, to cover your own travel costs, or simply to make a few extra bucks.
But the sharing economy is still relatively new, and insurance companies are still figuring out how to underwrite short-term rentals.
The good news is, if you have home or building insurance already, your short-term rental insurance policy will be similar.
Here’s how it works.
Step 1: Get a home or building insurance policy.
Step 2: Inform your home or business insurance company you’ll be renting short term.
Yeah, it’s that simple.
Still have questions?
Let’s spin the wheel — wait, no — let’s break down the coverage in detail.
What Exactly Will My Short-Term Rental Insurance Cover?
While people tend to over complicate short-term rental coverage, the truth is it’s remarkably similar to a typical home insurance policy.
We’ll refresh your memory — here are the four perils insured by your regular policy and your short-term rental insurance policy:
- Sewer backup and flood
- Hail & wind
- Liability (if a guest injures themselves)
Let’s say you own a building of six units and rent each one out separately for short-term use.
A company like Intact will give you a standard building insurance policy with the above coverages.
If you know your stuff, you probably noticed something missing from that list: vandalism & theft.
Those two perils are often excluded for a short-term rental property — and we’ll explain why in the next section.
Who Pays for Property Damage Caused by Short-Term Renters?
Typically, the easiest and quickest way to deal with damage to your property caused by guests is by making a claim directly through your insurance provider.
But as we just learned, there’s one common scenario that could leave you hung out to dry.
What if the damage was caused intentionally by your guests?
Insurance companies that provide coverage for short-term rentals will exclude theft and vandalism damage caused by your guests.
If that happens, you’ll have to approach the rental platform, so hopefully you’re using one that offers host protection.
You might be thinking: ‘shouldn’t the guest that caused damage pay for it?’
And in theory, they should.
But unfortunately, that’s rarely the case in real life.
In many cases, your guests (especially if they’re younger) won’t have the money to pay for the damages, so chasing them down won’t get you very far.
When that happens, hiring a lawyer and going to court will prove to be a waste of your time and money.
Insurance companies have seen this before, and this is how it usually plays out in their heads: a group of 20 rambunctious youngsters visiting town for a bachelor party reach out to rent your place.
Inevitably, after a few days of partying, they leave you with some fixing up to do.
From a home insurance perspective, this isn’t something we want to constantly deal with.
And that’s why insurance companies are starting to exclude theft and vandalism for short-term rental policies — and why many won’t insure you at all.
Given that guest vandalism & theft isn’t covered, it’s crucial that you background-check your renters properly so you can flag when someone’s just looking for a place to party.
If you’re not careful, this can become a recurring nightmare.
Your next move might be to take it up with the short-term rental platform.
Not all platforms cover the host’s property, but Airbnb provides its hosts with up to $1,000,000 of property insurance.
Research a platform’s host protection policy before signing up.
A smaller company might take less commission, but may not provide a host-friendly insurance policy or boast the same robust customer support network as a giant like Airbnb.
Here’s the lesson: know the platform’s protections before listing your property, have a proper short-term rental policy in place, and always vet your guests before accepting their reservation.
Does Your Homeowners’, Building or Renters’ Insurance Policy Cover Short-Term Rentals
No — the insurance you currently have for your home or condo doesn’t cover short-term rentals.
When you approach insurance companies looking for this additional coverage, beware that many will refuse to cover you.
Short-term rentals are still relatively new to insurance companies, and many are still not willing to accept the risk — or perceived risk — associated with them.
If you decide to stay quiet about renting your place short-term, you’re almost sure to be refused when you do make a claim that involves accidental damage caused by your guests.
So where should you turn?
KBD is an insurance broker in Montreal that does cover short-term rentals, and we do so through providers like Intact and Lloyd’s.
Desjardins is a direct provider that covers this type of exposure.
When you call to add your new coverage, your broker will ask the same questions as they would for a home insurance policy — and they’ll add a surcharge for the increased risk that comes with renting your home short term.
Expect to pay an additional 25-30% on your existing price, though of course every company is different.
A short-term rental policy is basically the same as a homeowners’ policy, with coverage that includes liability & property insurance, but minus the vandalism & theft perils.
Without coverage for those perils, it’s important to use a platform that adds a layer of property insurance and to vet your guests carefully.
To avoid surprises, inform your insurance broker as soon as you start renting short-term.
Now back to you, the host.