A year ago Stephanie and I switched our above-the-garage rental apartment property from a traditional long-term rental to shorter Airbnb rentals. Preparing for the change, we did exhaustive research into the question of homeowners’ insurance.
Would our homeowner’s policy still work with Airbnb?
Could we get a supplemental policy?
What was covered by Airbnb’s own insurance and host guarantee programs?
The short answer is that as an Airbnb host, you do need additional insurance. Hosting with any real frequency is likely to void your current homeowners policy, and Airbnb’s own protection is inadequate.
As an attorney who reviews insurance documents daily, I have a high tolerance for wading through contractual balderdash posing as highbrow legalese. I actually dug up and read the coverage documents for every insurance policy I could find that would cover our home and our Airbnb.
I’m going to share why and how we switched our homeowners insurance to a policy specifically created to cover short-term rentals.
Required disclaimer: I looked at insurance policies that were available to us, but I don’t know what might be available to you. For a lot of reasons, your situation may not be the same as ours. This was my advice to our own family, and may not apply to you, but you’re welcome to listen in.
And while you’re here, if you’re interested in hosting with Airbnb, you might also want to see:
Wait, but doesn’t Airbnb have it’s own insurance for hosts?
Yes. And no.
The Host Protection Insurance is a real, albeit limited, liability insurance policy which protects hosts in certain circumstances if they get sued for physical injury or property damage that arose from an Airbnb guest’s stay. It also covers some specific instances where common areas of the property, like a lobby or shared stairs, are damaged during a stay.
There’s a long list of exclusions, but the most important one for us is that it explicitly does NOT cover, except in very narrow circumstances, any loss of or damage to “property you own, rent, or occupy.”
So what does the Airbnb Host Protection Insurance cover?
Let’s say that a guest is walking across the porch of your Airbnb rental with his laptop computer. He slips, loses his footing, and breaks both his arm and his laptop. He sues you. The Host Protection Insurance should have you covered for the cost of his injuries, his broken laptop, and some of the legal expenses. However, if the flying laptop follows an unlucky path and breaks a window in the rental, that damage to your property is not covered.
The Airbnb Help section makes it sound like that’s no big deal, because the Host Guarantee is there to protect you when a guest damages your property.
So what is the Airbnb Host Guarantee, and what does it do?
The Host Guarantee is a promise that Airbnb makes to a host that covers some kinds of property damage if caused by a guest or someone the guest invites onto the property, during a stay booked via the Airbnb platform.
Let’s go back to the flying laptop and broken window. That broken window in the rental should fall under the Host Guarantee. That’s a pretty clear case for coverage.
Our Airbnb apartment is above a standalone garage, about fifteen feet from our house. What if the laptop skidded across the porch, flew over the edge and across to our house, breaking the window in our home instead of in the rental? The Host Guarantee expressly excludes payment for a very long list of things, but the really important ones for us are:
- “Any damage to any property that is not in, at, or on a Covered Accommodation.
- Real property owned by a party other than you and that you do not control.”
So the rental window is covered, but because our primary home is not “in, at, or on a Covered Accomodation,” the Host Guarantee does not cover the cost of fixing the window in our own home.
And if a guest flips a cigarette outside or starts a kitchen fire that spreads? The actual rental apartment is covered. But the Host Guarantee seems to exclude any coverage for damage to the garage that sits under the rental, or our own home next door, or the neighbors up the hill. None of that is covered.
But won’t your normal homeowners policy cover that kind of damage?
Ours wouldn’t. And I haven’t seen any in our area that would.
Before we started Airbnb, we had a homeowners policy with an addendum for the long-term rental of the apartment. The policy and addendum excluded any claim arising from or related to business activity, except for the business of renting the apartment for a period of at least one month at a time.
The effect was very clear. If we rented the apartment for less than one month, and the short-term renter accidentally burned it down, or left the water on and flooded it, or tripped on the stairs and broke a leg, our insurance company would pay nothing. Even worse, if the fire or flood damaged our own home, they would also pay nothing.
Damages from short-term rentals are specifically excluded from coverage. Even worse, giving the policy the interpretation most favorable to the insurance carrier, accepting our first Airbnb guest could have voided our entire homeowners insurance coverage, no matter what the source of the claim!
This is not because we had bad insurance. Nearly every standard homeowners policy includes a similar limitation when the primary home and the rental are on the same property. The details can vary, but I’ve seen policies that would be void for reasons including:
- You rent a building (or trailer, or boat, or treehouse, or anything) on your property for less than 30 days
- You rent it for less than 30 days without written approval of your insurance carrier
- You rent it for less than 30 days without at least 30 days’ written notice to the insurance carrier
- You have more than 3 nights of short-term rental during a policy year
- You have more than 10 nights of short-term rental during a policy year
- Your revenue from short-term rentals exceeds $1,000 or $5,000 or $10,000 during a policy year
The worst part is that I couldn’t rely on my own local insurance agents, the supposed experts, to help interpret the policies. During our search for an Airbnb-friendly homeowners policy, I talked to three different insurance agents who clearly did not understand the limitations of the policies they were selling.
One of them came around as soon as I pointed out the relevant policy language and he had it confirmed by the underwriter.
With another, it took several tries before she realized that the policy she was offering wouldn’t work.
One agent is still sure his policy would have covered us. I hope he never sells it to anyone who actually has to make a claim.
So Airbnb coverage doesn’t work, and a normal homeowners policy or rental addendum doesn’t work. What else is there?
Clearly, we needed something different.
Of course, actually replacing our pre-Airbnb policy took some additional research. Because the beautiful, wooded foothills we live in are part of wildfire country, many insurance carriers don’t cover the area at all. We had a limited number of companies to choose from, and exactly zero of them would write a policy that covered a short-term rental business.
So we had to look further afield for non-traditional options.
Traditional carriers with specialty partners.
Some traditional carriers do have endorsements, direct supplemental policies, or can arrange for supplemental coverage from a specialty insurer. Last year, in our area, Farmers was the only carrier that would offer short-term supplemental coverage, through their Foremost Insurance Group.
I’ve heard that in 2019, Allstate, USAA, and Liberty Mutual started offering home-sharing or short-term rental coverage in some markets. None of them insure our forested hills, so I haven’t explored further. However, this is a hopeful sign.
Insurance built especially for short-term rentals
CBIZ and Proper Insurance each specialize in comprehensive short-term rentals and offer insurance made especially to cover properties rented through Airbnb. These same policies also work for short-term rentals on Homeaway, VBRO, and similar platforms.
CBIZ and Proper policies are almost identical. Don’t pay much attention to the miniscule differences their sales people emphasize. For most hosts, the differences won’t matter. If, however, the space you rent on Airbnb is a room within your own home, there are some differences you should consider.
Policies from these two companies replace your current homeowners insurance entirely with a new policy that also includes specific short-term rental coverage. Both have strong underwriters and will likely be around to pay claims when you need them.
There are a handful of interesting new options with on-demand insurance. The idea is that you can turn on the coverage when you have a guest stay and turn it off when they leave. This works best for hosts who have infrequent guests, as the cost goes up with each additional night a short-term rental is occupied.
Because our rental is nearly always occupied, this was not a cost-effective solution, but it’s an interesting idea for infrequent hosts. Slice seems to be the most prominent of these new options.
What did we choose?
After far too much time researching, talking to other hosts, arguing with insurance agents, and reading policies, we replaced our homeowners insurance with a new policy from CBIZ. It has better coverage than our previous policy, very clearly covers the potential risks of Airbnb hosting, and costs just about the same as Proper, but has been around longer.
Farmers and Foremost together also had an adequate coverage package, but cost too much.
Slice was an interesting on-demand option, but paying per night for so many nights made it the most costly by far. It could work better for less frequent hosts.
And what does it cost?
Since we’re all about sharing real numbers, this is as real as it gets.
Our old homeowners policy had a total annual cost of $1,425.
The new CBIZ policy has a total annual cost of $2,835.
Yeah. It’s about double the cost. I know. It’s crazy. But not all of that increase is due to it covering short-term rentals.
The policy that used to cost $1,425 is no longer offered to anyone in our county. Our prior insurer, like many others, has pulled out of Northern California altogether. A few consecutive years with $30 billion of wildfire losses makes California a hard place to hold a lot of risk.
The companies that remain in our area are raising their prices significantly, so our overpriced CBIZ policy isn’t much more than our neighbors pay for their policy without short-term rental coverage.
Don’t rely too much on our experience.
While this may be useful background for hosts and those interested in Airbnb, it will not be definitive for your situation. Insurance is regulated and sold differently in every state and your mileage may vary. Hopefully, you have more options than we do. Hopefully we’ll all have even more options soon.
As the market expands, insurance companies are rushing (as much as insurance companies can be said to ever rush) to understand how to value the risk of short-term rentals. I expect new products to arrive and evolve over the next few years as insurers start getting actual claims experiences.
For you, now, if you’re thinking of hosting, the important thing is to realize that
- Airbnb’s own insurance and host guarantee are not enough, and
- you may be voiding your own homeowners insurance by offering short-term rentals.
Be careful. Learn about your current policy. Find out what options are available in your area.
We love hosting with Airbnb, but your home is likely your most valuable asset, and the place you live. Don’t put it at risk by making uninformed insurance decisions as you set up an Airbnb side income. Be smart. Make sure you and your home are protected.