Short-term rentals and home insurance: the potential pitfalls

With the advent of websites such as Airbnb and VRBO for short-term rentals, many property owners are taking the opportunity to generate extra income by renting out their homes to visitors. Sounds like a great idea. Unless you are like the unfortunate Calgary couple whose home suffered approximately $150,000 damage last week during a “drug-fueled orgy” by Airbnb renters.

Before renting your home

Before allowing short-term rentals in your home, one of the most important things you should do is discuss this with your insurance broker to see if your home insurance will extend coverage for short-term rentals. Currently, many insurance companies are unwilling to provide coverage for homes in which short-term rentals occur. The reason: homeowner insurance is based on the assumption that the property will not be used for commercial purposes. Basically, short-term rentals increase the possibility of property damage as well as liability claims, which is not the intention of a homeowner policy.

Insurance company guidelines for short-term rentals

Each insurance company has its own guidelines about what is permitted/not permitted with regard to short-term rentals. It is up to the property owner to disclose to his insurance broker the nature of the short-term rentals that he wishes to allow. Failure to disclose this information can result in nullifying a home insurance policy.

Below are sample guidelines for short-term rentals by one insurance company. Again, keep in mind that there are no insurance industry standards. You must check with your insurance broker to see what is allowed in your homeowner policy.

  • Home exchange/swap: Permitted, up to maximum 6 months.
  • Rental of entire home: Not permitted
  • Rental of room: Permitted. Owner must occupy the home at the time of the rental.
  • Rental of enclosed suite: Permitted. 2-family occupancy surcharge applies. Owner must occupy the home at the time of the rental. No more than 4 rental occupants at any one time.

Another important point to remember is that short-term rentals, even when permitted by insurance companies, can limit your insurance coverage. For example, vandalism and theft caused by short-term renters may be excluded. Check with your insurance broker as to how your insurance coverage may change.

The commercial policy option

A homeowner does have the option to insure his home under a commercial policy. This may be an attractive option for some homeowners who find that home insurance policies are too restrictive in terms of short-term rentals. However, please note that insurance coverages are generally more expansive under a homeowner policy than a commercial policy.

Would you like a home insurance quote or more information about insuring your home?

Please contact Habitat Insurance Agencies at 604-438-5241, email or via our contact form. One of our professional brokers will be happy to assist you.

Copyright 2015 © Habitat Insurance Agencies Ltd. All rights reserved. Disclaimer: This article is designed to provide information for personal use only. Please consult your professional insurance broker for further professional advice. Habitat Insurance Agencies Ltd is not responsible for any legal disputes of this matter.