Understanding Airbnb Liability Insurance

Hosts know how important Airbnb liability insurance is for their short-term rental business but many do not realize that the coverage provided by the platform often isn’t enough to protect their property. Some people also believe that their homeowners’ insurance will supplement whatever holes there might be but this isn’t always the case either.

What do you need to know about Airbnb liability insurance and how can you ensure your property is protected? Knowing what’s covered and what isn’t before you file a claim is an essential part of short-term rental business success.

Understanding What Your Renters’ or Homeowners’ Insurance Provides

Policyholders might not realize it until they go to file a claim, but insurance companies often have the right to deny claims. This is especially true when those claims involve short-term guest renters. When you sign up for insurance coverage, you sign a contract that includes a significant amount of information.

Within that contract is likely a clause that addresses Business Pursuit Exclusion. A Business Pursuit Exclusion, which might also be called a Business Activity Exclusion, is a clause that states the insurance provider can deny claims related to a business operated inside of your home. Despite Airbnb renters being guests in your home, insurance companies can deny claims because guests are only temporary residents. Even if they have access to the entire property, it’s only for a short period of time.

In many ways, insurance companies view Airbnb properties like hotels. Hotels have a different type of insurance coverage intended for business operations. It’s far more expensive than what you pay for homeowners’ or renters’ insurance and doesn’t offer the same coverage you need as a homeowner. Even if you were willing to pay the cost of this type of insurance, you couldn’t use it to replace your other policy.

Insurance companies view short-term rentals as high-risk, which is understandable. And because of this, they aren’t willing to offer coverage for these situations. You won’t have the protection you need when using your home as a short-term rental if all you have is renters’ or homeowners’ insurance.

Viewing Your Airbnb Rental as a Business

Though it might feel as if you are not operating a formal business, that is exactly what you are doing when you host on Airbnb property. This is the case whether you’ve purchased an investment property or you’re renting an extra bedroom in your home. Some cities are even requiring Airbnb hosts to purchase business licenses. This appears to be the direction things are going even if your city has not yet implemented this requirement. Airbnb hosts are also required to file a Schedule C on their income tax returns and in some cases, are required to pay a hotel tax and invest in Airbnb liability insurance.

Keep in mind, the insurance requirements for short-term rentals and long-term rentals are different. So, if you are renting from a landlord and you’ve listed your space on the Airbnb platform, do not assume that your landlord’s insurance covers any claims that occur. Your landlord has long-term rental insurance which is different than what you need. In long-term rental insurance, if the resident of a property is injured or there is other damage, the renter’s insurance is on the hook for the claim, not the landlord’s, in most case. The exception is if you are injured shortly after moving in because of a safety hazard. In that case, the landlord is responsible.

What Should You Do to Ensure Your Insurance is Enough?

The best thing you can do is investigate your situation before you need to file a claim. This can be frustrating because it might be tough to get a straight answer from insurance providers but the more you know in advance, the better. If you’ve listed your property on Airbnb or before doing so, contact your insurance agent and ask about their policy on short-term rental coverage. Don’t be afraid to ask questions or to ask that something is sent to you in writing in layman’s terms as opposed to a contract.

Your next option for preventing problems is to be clear about expectations and obligations with guests. Set house rules and make it clear upfront who is responsible for what while they are staying with you.

Finally, discuss your situation with insurance experts. There are people out there who specialize in short-term rental property insurance and that can answer questions and help you figure out what to do to protect yourself. Some of these insurance providers can even offer a quick online quote that gives you an idea about what you’ll spend if you decide to invest in short-term rental insurance and coverage providers are available in all 50 US states.

What Airbnb Provides to Hosts

Airbnb does offer hosts on its platform its $1 million Host Guarantee. If a booking is made through Airbnb, the company offers protection at no additional charge to the host or the guest. You don’t need to do anything to get this coverage other than listing your property and rent through the platform.

But before you make the mistake of thinking $1 million would be more than enough to cover any damage to your property, it’s important to consider the potential pitfalls of the Host Guarantee. You need to know what’s covered and what isn’t and anticipate that filing a claim won’t be smooth sailing. A good example of this is the fact that shared and common areas of a property aren’t covered under the Host Guarantee, nor are losses related to unprotected items.

The Airbnb Host Guarantee is a good start when it comes to coverage but if you’re serious about operating a successful short-term rental business, it’s a good idea to invest in more coverage. Essentially, you need to take a three-pronged approach to Airbnb liability insurance:

• Set out clear information for guests in advance
• Understand the Host Guarantee
• Invest in your own short-term renters’ liability insurance that covers anything that isn’t addressed by the first two items on this list