As the home-sharing movement grows in popularity, so does the reality that homeowners renting out their properties are essentially small business owners. And as with any small business, there are numerous legal and financial issues that that must be taken into consideration. Not the least of these involves risk and liability protection. Unfortunately, many using their homes as small businesses are in the dark when it comes to understanding their risk.
According to a recent survey by global risk solutions provider Assurant, nearly two-thirds of homeowners are not certain whether their homeowners’ insurance policy covers vacation renters. Additionally, 55 percent said they have no idea who is responsible or liable if something goes wrong.
While the survey found that most people claim not to break rules when home sharing — and that when they do it’s generally on the order of exceeding the maximum number of guests or staying past check out time — there are always exceptions that can result in significant damage. Whether it is kids swinging from a dining room chandelier or indoor water balloon fights, owners need to be prepared for the worst.
Depending on the policy, this can simply mean checking with the insurer to determine if the policy allows brief stays or securing an endorsement or rider to an existing homeowner’s policy to cover losses from having a limited number of short-term rentals. By contacting the insurer, the policyholder will determine coverage limits, although that conversation could result in higher premiums or a policy being canceled. With that in mind, if a budding home-sharing business takes off and owners begin hosting guests on a regular basis, an insurance policy upgrade will probably be required.
The biggest misunderstanding when it comes to home-sharing protection is the need for commercial use exclusion clauses and $1 million policies marketed by home-sharing companies.
Most insurance companies view renting out a home on a regular basis as commercial usage and deny claims based on a commercial use exclusion clause in the homeowners’ policy. That means the owner is on the hook if someone gets injured. To make things even more complicated, different insurance companies approach commercial use exclusions in different ways. For example, some policies may indicate that “occasional home-sharing” is allowed without really defining what that means. Unfortunately, the homeowner doesn’t find out the true definition until something bad happens and they’re not covered.
Just as important is understanding the protection options that various home-sharing companies are offering. While $1 million certainly is appealing, and the general sense is that it should be more than enough to cover anything major, that’s not always the case. The reality is that many of these offerings are not real insurance, and often include long lists of terms, conditions, and exclusions. Bottom line: read the fine print.
The one-size-fits-all approach generally does not work when it comes to commercial usage insurance for home-sharing.
For most owners renting their homes, the key to having the right protection is to identify home-sharing companies that can customize products that best fit individual needs. For example:
- If an owner is only renting out a home seven nights a month, then only seven nights of coverage is needed.
- Coverage for condominium residents should look different than it does for someone living in a single family home
- For those using home-sharing to build a small business with meaningful revenue generation, having a policy that will reimburse lost future revenue due to guest damage is imperative.
Regardless of the particulars, working with a home-sharing company that has both damage and liability is critical to mitigating financial ruin in the event a guest is injured and pursues litigation.
As home-sharing increasingly becomes a small business opportunity, homeowners must make sure they understand the risks and rewards, and that they are protected. The key is to work with the home-sharing companies that are taking the lead in educating homeowners about risks and offering protection options that ensure the rewards of home-sharing outweigh the risks.