BEFORE YOU RENT, OWN THE RISKS!
Are you intrigued by the idea of renting out a room in your home to earn extra income? You may think it’s easy money, and that you can rent a room for a short time, or your entire house for a long time. But before you sign that rental agreement, remember! You’ve worked hard for all the things you have!
Let IMA Select be your lifestyle protector by sharing these six important insights!*
WHAT ARE HOME-SHARING WEBSITES?
There are several apps and websites that enable you to rent a room or your home to a stranger. Home-sharing or peer-to-peer rental (P2P) sites include Airbnb, Roomorama, VRBO (Vacation Rentals by Owner) and HomeAway. They enable guests to find a property and pay for the stay just as they would in a hotel; the difference is, the property is usually a privately owned apartment, condo or house, not a licensed hotel or bed-and-breakfast.
Anyone can register with these sites as a host or guest. And, importantly, both guests and hosts can incur costs if things go astray.
WHAT’S THE RISK IF YOU’RE THE HOST?
What if your guest vandalizes your property, the hallway of your condo or even your neighbor’s swing set? What if a guest is injured on your property? As a host, your homeowners or renter’s insurance policies are not designed to cover accidents arising from property rental, and your insurance company may
deny coverage for any resulting claims.
Also while P2P sites serve as legitimate and convenient portals that connect hosts and guests, these types of rentals may fall outside your local zoning or housing laws and regulations, which could result in your being in violation of your local laws or codes. Even if you haven’t violated any law, you might have to hire legal counsel to protect and defend yourself from any charges.
WHAT’S THE RISK IF YOU’RE A THE GUEST?
In its user agreement, Airbnb reserves the right to make a claim under your homeowners or renter’s policy for any damage or loss you cause to an accommodation. Other P2P companies may have similar agreements, so make sure to check their terms of use. It’s also a good idea to speak with your insurance agent or carrier before agreeing to rent the space—just so you understand your coverage and possible liability.
HOW CAN YOU PROTECT YOURSELF AS A HOST?
The NAIC reminds homeowners that accidents can happen, anytime, anywhere. Even if you take preventative measures, your tenants or guests could trip over a rug or fall over their feet, causing injury. Most homeowners policies provide coverage if a visitor to your home falls and is injured. But if a paying renter falls in your home, you might not be protected, because your coverage may not be intended for
commercial use. Without liability insurance protection from the P2P company facilitating your host agreement, your homeowners or renter’s insurance policy might leave you without coverage—but still
liable for damages.
Homeowners policies vary, but you should be aware that they usually exclude coverage, or provide very limited protection, for homeowners who are running a business in their home. When you begin earning
income from renting out your home or a room, your carrier will probably classify you as a home-based business. If you lease out a room or your entire home for profit, your insurer could claim that you’re essentially running a hotel or bed-and-breakfast and deny coverage. On the other
hand, if you rent out space in your home only occasionally, your insurer might provide an endorsement to
protect you. A renter’s insurance policy is subject to the same limitations as a homeowner’s insurance policy.
Some experts recommend renting only to guests who have homeowners, renter’s or personal liability insurance and are able to show proof that they’re insured; that way, if your property is damaged, you could file a claim under the guest’s policy.
To make sure you’re protected, speak with your agent about your situation and participation in this activity— preferably before you sign up with a P2P website. However, if you plan to rent your house to a single
tenant for a long term, or if you plan to rent out a room or the whole house frequently to multiple tenants, purchasing a landlord policy (also known as “Landlord Property Insurance” or “Rental Coverage for Landlords”) might be your best option. The NAIC explains that a landlord-insurance policy will cover your home, structures on the property, contents that you own (such as appliances and furniture), lost rental income due to building damage, legal fees and/or injury to your tenant or their visitors.
WHAT ELSE DO YOU NEED TO KNOW?
Currently, Airbnb provides host-protection insurance with coverage up to $1 million if a guest claims bodily injury or property damage against you. The NAIC notes that this liability insurance program is automatically applied to every listing in the U.S. but the coverage is secondary, which means it applies only after your primary insurance policy has either settled or denied
a claim.
Also, laws regarding P2P companies can vary from state to state—even from city to city—so be sure to
speak with someone who is knowledgeable about your location. Because home-sharing companies are still a fairly new phenomenon, the NAIC recommends that you speak with your agent or insurance provider
about your risks as a host to make sure you’re properly covered before you list your property for rent.