Offering part of your house on Airbnb may pose insurance risk

By on March 26, 2018

Insurance might not cover an Airbnb rental. (Voice illustration)

It’s expensive to live on the Outer Banks, and the opportunities to make a few extra dollars are few and far between.

And then a friend tells you about Airbnb: She’s renting her unused downstairs unit,  a small efficiency, to tourists and business travelers looking to avoid one-week rental commitments and high hotel room rates.

You do some checking and discover Airbnb is all the rage, the  darling of the plugged-in set as they post about cheap stays at homes and apartments from Brooklyn to Paris.

You sign up, list your spare room or unused downstairs living area and start counting the ways you’ll spend that extra cash.

But what happens if a tenant damages your house or falls down your stairs, or if your homeowner’s insurer finds out that part of your house is listed with Airbnb?

“No question, it’s a big exposure,” says Scott Weatherly of the Weatherly Insurance Agency, a Nationwide Insurance agency that has been serving northeast North Carolina since 1984.

“Nationwide Insurance doesn’t want them at all. If they find out a home is in that program they will cancel the policy. Plus if there is a claim, the company can deny coverage based on it being a ‘business,’ which the typical (HO 3) policy isn’t designed to cover.”

Weatherly says agents and the company itself are starting to pay attention to Airbnb businesses. If a home they insure under a residential homeowners policy is discovered, non-renewal with them is in their future.

Jackie Chunn, vice president of Elite Insurance Agency, an independent agency that can underwrite insurance with numerous carriers, offers similar advice: “When it comes to renting your home, whether you do it personally, have a property management company rent it, or rent it online through sites such as VRBO, Airbnb, etc., you need to ask your insurance agent if your insurance policy covers you for liability claims from third parties, and property damage to your own home.”

“The part that’s most scary in that situation is people aren’t checking with their insurance companies to see if Airbnb is allowable,” Weatherly adds.

Chunn notes that not all carriers treat Airbnb the same way, but essentially offers the same warning as Weatherly.

“There is no one-size-fits-all answer. Each insurance carrier has their own guidelines. If rentals are allowed by your insurance carrier, you should clearly explain what type of rental it is. It makes a difference if it’s intended to be rented year-round, monthly, weekly, daily, and it may matter if only a portion of your home is rented, while you occupy it. If your insurance carrier’s underwriting guidelines are not followed, you could potentially face a cancellation of your coverage, and/or a denial of your claim.”

Airbnb’s website touts its “Host Protection Insurance,” which it says will cover up to $1 million of personal damage or bodily injury.

A quick survey of the Internet reveals mixed reviews on Airbnb’s payment practices, with some renters claiming the company paid as expected while others described a cumbersome, red-tape-filled experience where it appeared Airbnb tried to avoid paying full or even any reimbursement.

Two things both Weatherly and Chunn agreed upon was that Airbnb’s coverage isn’t guaranteed and you won’t have a local agent to help you deal with your claim.

Even if Airbnb pays, if your insurance agent or carrier finds out your house was damaged by an Airbnb renter, that prospect of cancellation or non-renewal will be hanging over your head.

And if Airbnb doesn’t pay, the likelihood of your primary carrier stepping in to cover the claim is slim to none if it was  unaware of your participation in the first place.

Why are insurers so concerned about your renting your house under the Airbnb program?

One reason is that renting the home might change its use from residential to commercial, and residential policies don’t take into account the increase liability risk that comes with Airbnb rentals.

In a normal scenario, the average homeowner may have less than a dozen overnight guests a year — typically close friends and family.

With Airbnb, that number could rise “upwards of 100 people” Weatherly notes. And most of these renters are strangers who have no ties to the homeowners.

More people, by simple math, means more chances for a claim — a tumble down the stairs, a sink left running, a stove catching fire.

If the renters are strangers or occupying the house in your absence, the threat of theft, unsanctioned parties, pet damage or even old school “trashing” of the dwelling and premises increases.

The premiums and coverages of your homeowner’s policy aren’t designed to take into account these non-typical risks, and therein lies the reason your insurance carrier probably won’t share your enthusiasm for Airbnb rentals.

In addition to insurance risk, homeowners also must take into account local ordinances and zoning rules, everything from the collection of occupancy taxes to discrimination laws and where your renters might park or how many will be occupying homes served by septic systems.

Both agents told us that as of this writing, they haven’t had any significant problems with Airbnb issues among their policyholders.

But with the popularity of the company growing, more and more local homeowners are likely to consider Airbnb as a source of extra income and in the process, run the risk of losing their insurance coverage or facing unpaid damage claims as a result of renting in full or in part to Airbnb renters.

The best insurance against such an outcome is to check with your insurance agent before signing the dotted line with Airbnb. You might need business insurance or a landlord policy.

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  • Rick

    Here’s a twist.

    “Both agents told us that as of this writing, they haven’t had any significant problems with Airbnb issues among their policyholders.”

    and earlier in the article,

    “Scott Weatherly of the Weatherly Insurance Agency, a Nationwide Insurance agency… Nationwide Insurance doesn’t want them at all.”

    Monday, Mar 26 @ 7:59 am
  • Carter McKay

    Russ, I see you’re hard at work doing a hatchet job at the behest of the local vacation rental industry.

    The local rental industry isn’t all it proclaims either and I’m certain if you did an honest analysis, you would find many property owners that would attest to that fact.

    Companies like Airbnb, VRBO and HomeAway are the future. Either locals will adjust and build a better mouse trap or they’ll follow the fate of the Dodo bird!

    Monday, Mar 26 @ 8:26 am
  • Aris Mantalvanos

    This is why you need to have your insurance written by an agent who is able to write for coastal vacation properties! This is not a standard policy and needs to be shopped around. As a guest or vacationer, your best bet is to contact the owner directly and work with them.

    Monday, Mar 26 @ 8:46 am
  • Lincoln Washingon

    So much FUD in this article, since when did the fine people of the outerbanks let insurance companies dictate how we are to run a home business. The sad truth is most insurance premiums are a scam, too many times have I heard stories of the entire seasons profit being used on repairs because the insurance coverage wasn’t adequate even though they are paying upwards of $5000 annually. Most people use Airbnb when rentals are suddenly cancelled, weather happens, or to make a little extra money offseason. Airbnb may replace rental companies in the future as many of my friends are tired of paying 4.5% listing fees and dealing with all of the extra penalties which pop up as so many of us know.

    Monday, Mar 26 @ 9:33 am
  • Sean

    This whole article is nothing but marketing and fearmongering; and most likely just to get more money out of you. If someone falls down your stairs you can be sued whether you’re renting out your place or not. Seems to me insurance companies are doing their typical “find a way not to pay” routine again.

    Monday, Mar 26 @ 11:44 am
  • Arthur Pewty

    It’s all fun and games until you wake up one morning in your bathtub, packed in ice and missing a kidney.

    Monday, Mar 26 @ 8:49 pm
  • Be still my heart

    You mean the day will come when ordinances are enforced including parking and occupancy rates?!!
    Bring it on- if it takes Airbnb to get the ball rolling.

    Wednesday, Mar 28 @ 9:11 am
  • scales of balance

    Strange, that locals would cheer the likes of a major corporation over local businesses.

    Thursday, Mar 29 @ 11:18 am
  • Daniel

    Daniel from Airbnb chiming in here. “Relax. You’re covered by Airbnb’s $1000000 CAD Host Guarantee. Every booking, every time. Both for liability and damages.”

    Monday, Apr 2 @ 10:36 am