Consumer Advisory: Five tips for navigating short-term rentals and homeowners insurance
What you need to know about insurance in Denver's home-sharing marketplace
Technology has drastically changed the way people travel and stay in new places. Online marketplaces allow travelers to book entire homes or rent a room in a private home overnight. Popular websites like Airbnb, VRBO, Roomorama and HomeAway are now used widely to connect hosts with guests. This type of business goes by different names - home-sharing, peer-to-peer rentals (P2P) or short-term rentals (STRs) - and property owners use the online marketplace to advertise and book their privately-owned apartment, condo or house.
If you've been thinking about renting out a room or your home to overnight guests for extra income, you may wonderhow this might impact your homeowners insurance. Before you dive into the home-sharing marketplace, take five minutes to get wise and review these tips from the Division of Insurance (DOI), part of the Colorado Department of Regulatory Agencies (DORA).
1. Know the risk
What if your guest vandalizes your property, the hallway of your condo or even your neighbor's swing set? What if your guest gets injured on your property?
Both guests and hosts could incur costs if things go astray. As a host, your homeowner's or renter's insurance policies are not designed to cover accidents arising from property rental and your insurance company may deny coverage for any resulting claims.
While operating as an online platform, these types of rentals may fall outside of local zoning or housing laws and regulations, which could result in violating local law or code. Throughout this year, cities in Colorado - Denver, Boulder, Aurora, Fort Collins, Longmont - have been reviewing new rules for people offering their homes through the STR markets. Even if you have not violated any law, you might consider legal counsel to protect and defend yourself. Even if short-term rentals are legal in your area, you should also contact your homeowners' association, if you belong to one, to make sure you're not violating any association rules.
And if you are renting an apartment or house, don't assume you can act as a host. Your landlord may interpret your attempts as sub-leasing, which is a common prohibition in many rental or leasing agreements. Because of this, your landlord may take action, including eviction. If you're considering it, check with your landlord first to avoid any unpleasant surprises.
2. Protect yourself as a host
Homeowners policies vary, but usually exclude or provide very limited coverage for homeowners who are running a business in their home. Once you begin earning income from renting out your home or a room, you are probably considered a home-based business. If you lease out a room or your entire home for profit, your insurer could claim you're essentially running a hotel or bed and breakfast and deny coverage. Know that a renter's insurance policy is subject to these same limitations as a homeowners policy.
Most homeowners policies provide coverage if a home visitor falls and is injured. However, that is likely not the case if a paying guest falls in your home, because coverage may not be intended for commercial use. And without liability insurance protection from the company facilitating the host agreement, your homeowner's or renter's insurance policy might leave you with no coverage.
However, if you seldom rent out your home, your insurer might provide coverage.
To make sure you are protected, talk to your insurance agent about your situation and participation in this activity. If you only occasionally rent a room or your house, your current homeowners insurer might be willing to provide an endorsement to protect you. However, if you plan to rent your house long term or if you plan to frequently rent out a room or the whole house, then purchasing a landlord policy (also known as landlord property insurance or rental coverage for landlords) might be your best option. A landlord insurance policy will cover your home, structures on the property, property contents that you own (such as appliances and furniture), lost rental income due to building damage, legal fees and liability protection.
Some experts recommend only renting to guests who have homeowner's, renter's or personal liability insurance and are able to show proof they are insured. Then if your property is damaged, you could file a claim under the guest's policy.
3. Protect yourself as a guest
Your own homeowner's, renter's or personal liability insurance policy will generally protect you even as a guest if you happen to cause damage to a host's property. But understand that per Airbnb's user agreement, the company reserves the right to make a claim under your homeowner's or renter's policy for any damage or loss you cause to an accommodation. Other P2P companies may have similar agreements so make sure to check their terms of use.
4. Know what insurance is available from the STR company
Currently, Airbnb provides host protection insurance with coverage up to $1 million if a third-party claims bodily injury or property damage against you as a host. This liability insurance program is automatically applied to every listing in the U.S. and the coverage is secondary. It only applies after your primary insurance policy either settles or denies a claim. Laws regarding STR companies vary from state to state, even city to city, so it's important to speak with someone who is knowledgeable about your location. Since home-sharing companies are still a fairly new phenomenon, talk with your agent or insurance provider about your risks as a host to make sure you are properly covered before you list your property for rent.
5. Contact the DOI
Knowledge is power and the more you can educate yourself about insurance issues related to rentals in the sharing economy, the better.The DOI is a consumer resource where insurance experts can answer your insurance questions and provide easy-to-understand information.Call303.894.7490or1.800.930.3745(outside the Denver metro area) or visitwww.AskDORA.colorado.gov.
TheColorado Division of Insuranceregulates the insurance industry and assists consumers and other stakeholders with insurance issues. Visitwww.dora.colorado.gov/
If you would like to explore home-sharing as a possible investment strategy or income stream, we're here to help you navigate the ins and outs in the Denver Metro area.
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