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Renting Your Home to Vacationers? Better Check Your Insurance First

  

Does your home sit empty for large chunks of the summer? Why not rent it out to tourists, generating some extra dollars for your bank account?

If you do, you won't be alone. Airbnb, the growing online company in which homeowners list their properties to travelers across the globe, boasts more than 1.5 million active short-term rentals at any given time. And Airbnb is just one of the companies tapping into this market.

But while you can make solid income by renting out your home for two, three or more weeks a year, you'll also face an insurance challenge: If you want to become a regular "innkeeper" through sites such as Airbnb, you might need to invest in a business insurance policy.

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These policies, however, aren't cheap: The Insurance Information Institute says that business insurance can cost about 25 percent more than a standard homeowner's insurance policy.

If you don't do your research before deciding to rent your home on a short-term basis, you might find yourself facing a big bill should renters flood your bathroom or fall down the front steps.

Make a call to your insurance agent

Zach Everson is one of those homeowners who becomes a short-term landlord once a year. Each year, his company -- Derby Home Rental -- advertises homes in Louisville, Kentucky, for rent during the Kentucky Derby. He has also rented out his home during the derby.

His advice? Before you list your home for a short-term rental, make one call first: "I suggest people call their home insurer to find out if their policy covers them and what the limits are."

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Your existing homeowner's insurance policy might cover you if you only plan to rent your home out for one week of the year. If it doesn't, your insurer might require you to purchase a rider -- additional coverage to your existing policy -- to cover any damages that your renters might cause or any injuries they might suffer while renting out your home.

That's the easy way to protect yourself when renting out your home for short-term stays. But if you want to rent it out for a series of short-term stays throughout the year then your standard homeowner's insurance policy might not provide the coverage you need. Instead, you might need to take out higher-cost business insurance.

The reason is simple: If you become a regular landlord, renting your home out to several short-term guests a year, you are now operating your home as a business. Standard homeowner's insurance policies don't provide coverage for businesses.


Consider a hotel or bed-and-breakfast policy

If you do need to purchase a business policy, you'll probably have to invest in one designed for either hotels or bed-and-breakfasts. The rates on these policies are higher because insurers are taking on more risk when you open your home to several guests each year. The more guests you have, the more likely it is that your insurance company will eventually have to pay out on a claim.

Rachel Wu, district sales manager at the Santa Ana, California, office of Farmers Insurance, says that you might even have to switch insurance companies.

"Fewer companies are comfortable with short-term rentals," she says.

This is why it is so important to contact your insurer before you rent out your home for short-term stays. If you don't and your insurer discovers that you are renting your property out, the odds are that you'll be in violation of your insurance policy's terms.

If that happens, your insurer might suddenly cancel your homeowners insurance coverage, leaving you without the financial protection you'll need if one of your renters damages your property or suffers an injury while staying in your home.

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If you do call your insurer and they won't provide you the coverage you need to rent out your home, you'll have to make a decision: You can either scrap your plans to rent out your home or you'll have to go shopping for a provider that will sign you up for the business insurance policy you'll need.

Wu said that the need for a business policy instead of a personal policy is mostly related to liability. Wu says that your insurer will provide liability coverage if, say, a railing on your front porch breaks, causing a renter to fall and suffer an injury. But your insurer will only provide this coverage when you take out a business policy tied to the specific property.


"Typically, the differentiation is in how mobile the liability is," Wu said. "With personal liability coverage, the coverage follows the homeowner and will cover them, usually world-wide, for bodily injury or property damages that they are responsible for. The liability on a home being rented out is typically locked to the premises."

If you rent out your home through an online vacation site such as Airbnb, you might be able to purchase a type of insurance coverage directly from them. Airbnb, for instance, says that it offers Host Protection Insurance, which provides primary liability coverage for up to $1 million for every occurrence of a third-party claim of bodily injury or property damage related to an Airbnb stay.

On its Web site, Airbnb says that this insurance would provide coverage if, for example, a guest breaks a wrist after slipping on a rug and brings a claim against the homeowner. The company says it would also provide coverage for a claim filed against a host if a guest falls off a broken treadmill in the gym of an apartment building.

Be careful, though. This type of coverage might provide some protection, but it might not provide as much as a business policy would. And your insurer might still require you to purchase a business insurance policy even if you take out supplemental insurance from a vacation-rental service.

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