You probably never stopped to consider whether your homeowners’ insurance would cover property damage or liability claims caused by someone who is renting your house. Why would you? After all, the last thing on most people’s mind is how an insurance policy will respond to some, unknown future loss.
Home-sharing services like Airbnb and HomeAway have turned a lot of ordinary homeowners into part-time innkeepers. The Pew Research Center found that 11% of American adults have used home-sharing services. Airbnb alone boasts of having over 3 million listings worldwide.
This means that a growing number of you actually need to stop and consider whether claims involving renters are covered by your homeowners’ insurance. Unfortunately, the excitement and opportunity created by new business models make it too easy to overlook the downside.
That being said, there’s always a downside. For example, host homeowners face an increased exposure to:
- Personal and structural property damage or loss.
- Criminal activity, theft and vandalism.
- Liability to guests for property damage or bodily injury that occurs on the premises.
- Liability to third-parties for property damage or bodily injury caused by guests.
This brings us back to our original question. Does a standard homeowners’ insurance policy cover damage and liability claims involving renters?
You shouldn’t be surprised to learn that standard homeowners’ policies don’t directly address home-sharing. After all, today’s sharing economy didn’t exist when most of these policies were written. Nevertheless, there are some traditional provisions in standard policies that could limit or exclude coverage for the host homeowner.
- Eligibility. Standard policies are typically restricted to dwellings that are used exclusively for private residential purposes.
- Property Damage. A homeowner’s personal property that is stolen from areas that are rented to guests is generally not covered under a standard policy. Neither is the theft of a guest’s personal property. Standard policies can also limit coverage for some big-ticket items located in areas that are rented to others, like appliances, carpeting and household furnishings.
- Liability Coverage. Host homeowners may not think of home-sharing as a business, but insurance companies may disagree. This can be a problem because standard policies typically don’t provide liability coverage for business conducted from the home.
Despite not being expressly mentioned or excluded, losses suffered by host homeowners may end up not being covered by their standard insurance. Coverage gaps are common whenever old-school insurance is confronted with new-school behavior. These gaps can also be financially devastating.
Until the insurance industry can catch up with the Über’s and Airbnb’s of the world, potentially significant coverage gaps are likely to remain for home-sharing hosts. In the meantime, if you are or plan to become a host homeowner, you should carefully review current policies to identify any potential coverage gaps. If you’re not sure, you should ask an experienced insurance agent.