Cape Cod is ripe for a home rental platform like Airbnb and we’ve seen an increase in this type of online, on-demand business model in our beautiful little beach community. There are some considerations to take into account however before you become a host – with insurance being one of them.
We get this question a lot – “Does my homeowners insurance cover Airbnb or other online rental facilitators” and the bottom line is no. Not only does your homeowners insurance not cover rentals and any potential liability, but some insurance carriers, like the MA Fair Plan, will actually drop you if they find out. When a homeowner (or renter) places a property on Airbnb – whether a room or the whole home – it ceases to become a residence. Because Airbnb collects money, they are essentially acting as a hotel. A hotel does not carry homeowners insurance – they have a business insurance policy and that is what is needed to fully cover you. FYI – this “Business Pursuit” exclusion on a homeowners policy is universal for almost all carriers who write homeowners insurance.
Airbnb does offer “Host Protection Insurance” (HPI) with coverage described as “up to $1M per incident…if a guest is accidentally injured anywhere in a host’s building or property during a stay.” The problem is that the HPI program has many gaps, including:
- ‘Coverage is limited to $1 million per occurrence; $2 million per location. The policy aggregate is $10 million for all insured locations in the U.S.’ Shared limits are not your friend.
- Sexual Assault, Liquor Liability, Electronic Data and a whole list of other items are excluded
- ‘Coverage is in excess of any other available coverage. The host must submit the claim to his Homeowners insurance and the claim must be denied by that company before Airbnb’s insurance will pay. Presumably, the Homeowners insurance may also be cancelled for business use.’
So what does that all mean in laymen’s terms? Here’s a great example:
What if a guest burns down an entire condo building worth $2.5 million? Even if there is coverage for this scenario, anything beyond the initial $1 million offered by HPI would be the responsibility of the host. If the host’s Homeowners policy declines to cover them, so will the host’s personal umbrella policy.
So the host is on the hook for $1.5 million – personally.
We could go on and on with the what-if’s, but if you’re thinking of going the Airbnb route, please check with your insurance agent before you do. Airbnb is killing it…growing like crazy! The problem is that they are leaving their hosts with limited protection and the possibility of having their homeowners insurance dropped. In an area like Cape Cod, where a lot of insurance carriers are wary of writing insurance, this can be a real problem for homeowners.
We’ll be doing some more in-depth posts on the subject…so stay tuned and definitely reach out if you’re a client of Rogers & Gray and thinking of Airbnb as an income source. We want to ensure you’re insured!