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Airbnb Liability Insurance

Jun 29, 2018 | Tips & Tricks

A topic that comes up all the time is Airbnb liability insurance.  Is your current policy enough?  What about if you only rent a few times per year?  Does that even matter?  Are you even asking the right questions?  And who is answering these questions you ask?

Insurance is complicated

The problem with insurance is that you never know exactly what you have until you have to file a claim.  Statistics show that around 7% of homeowner’s & renters actually file a claim.

What’s alarming is that it’s safe to say 95%+ of Airbnb hosts carry either a homeowner’s or renter’s insurance policy.  Why is this alarming?  A homeowner’s (HO) or renter’s policy could rightfully deny any claim involving a guest.  Let’s dig deeper.

All major insurance companies use similar forms developed by ISO.  These forms have changed over the years, but one thing has remained the same; all homeowner’s policies carry a “business pursuit’s exclusion”.  In other words, any claim involving a business would be denied on the HO form.  This exclusion has also been altered.  Visit FC&S and scroll down to “Rental of Premise to Others” near bottom of page.

The key term here is “on an occasional basis forresidentialpurposes”.The problem is the definition of residence: Living or dwelling in a certain place permanently or for a considerable length of time.

When someone rents a place on Airbnb, whether it is a room, or the whole dwelling, for a night, or for a week, it’s NOT their residence.  Airbnb hosts collect money and rent their dwelling to guests; it’s no different than a hotel.  Hilton does not carry a homeowner’s policy; they carry a business insurance policy.

Trouble is, a hotel/motel business insurance policy is expensive and is not designed to replace a homeowner’s policy.  And major homeowner’s insurance carriers see short-term rentals as very High Risk and will not insure them as a business and offer commercial/business liability.

Are you a landlord or property manager?  Make sure you are requiring your tenants or property owners to carry the correct type of insurance.  Don’t forget to be added as an additionally insured party.

Top 10 Questions about Airbnb Liability Insurance

So you know you need Airbnb insurance, but you still have questions.  Below are the most frequently asked questions about Airbnb liability insurance.

Why does my homeowner’s policy not cover my short-term rental?

All homeowner’s policies carry a “business activity exclusion”.In other words, any claim involving a “business activity” could rightfully be denied. Airbnb is considered a business, so your claims will most likely be denied.

Is my short-term rental really a business?

More and more cities like Austin, Santa Barbara, and Chicago are now requiring short-term rental owners to carry and pay for a business license. The tax codes have changed and short-term rental owners are now required to file a business Schedule C on their income taxes. Neither of these are requirements for a long-term lease rental. NEW NOTE: San Francisco just passed a law to go in effect Feb. 2015 that all short-term rental owners (30 days or less) will be required by law to pay the cities 14% hotel tax, carry $500,000 in liability insurance, and register with the city.

I have a landlord policy and have been told this covers my short-term rental, is this correct?

Landlord policies also carry a “business activity” exclusion.Landlord policies are written for landlords, not business owners. A long-term lease rental is not a business. Let’s use a liability example: A renter leases your home for six months. Two months later he/she “slips and falls” in the shower because there is soap scum built up on the tub floor. Does this liability fall on the landlord? No, of course not, it’s the tenant’s responsibility to keep a clean tub. Now, the same situation. A vacationer rents a home for a week. You better believe it’s the property owner’s responsibility to keep a clean tub. The vacationer assumed they were renting a clean/safe property. No different than a hotel. The liability falls on the property/business owner.

How do I get covered for business activity?

You buy a business insurance policy.

If I insure my short-term rental as a business, can I also stay or live there?

There are no standard occupancy restrictions on a business policy.  This means the property is insured while you stay there, friends or family, and of course paying guests.

If I have a business policy do I keep my homeowner’s or landlord policy in place?

The business policy is designed to fully replace the current coverage you have. You would cancel your current policy.

What is personal liability?

Personal liability is found on homeowner’s policies.It covers you for personal negligence and follows you anywhere you go in the world. It’s very important to carry personal liability. This is why the business policy needs to add it in the event your short-term rental doubles as your primary residence. There is no reason to add it in the event you carry a homeowner’s on another residence, as you would be “double insured”.

Does my personal umbrella policy cover over my short-term rental?

The same “business activity” exclusions apply as it’s personal. However, standard personal umbrellas do cover over a long-term landlord property. It’s not a business.

If I have a business policy do I keep my homeowner’s or landlord policy in place?

A commercial umbrella is a policy that covers “above and beyond” a standard business policies liability limits.Most business policies carry $1,000,000/$2,000,000 in commercial general liability, and would suffice as the underlying policy for a commercial umbrella.

I have my short-term rental under a Corp is this OK?

In fact, this is encouraged. Since your short-term rental is a business it’s always smart to incorporate. A standard business policy can have the named insured as an individual, partnership, LLC, Corp, or Trust.