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Are short-term home rentals an insurance risk?

If you’ve got a spare room or a vacation home, leasing out your space through a short-term rental site like Airbnb or HomeAway may seem like a great option for bringing in some extra cash.

But be careful when playing landlord: Are you certain that your homeowner's or renter’s insurance company will cover damage or liability claims tied to your paying guests? Before you consider leasing a room or house through a short-term rental site, take a good look at your insurance coverage — it may not offer the protection you need.

What are the risks?

In the majority of situations, you’ll never need to file an insurance claim related to a paying houseguest. But, of course, there are exceptions.

short term rental insurance risk In one widely publicized case, an Airbnb host rented out her San Francisco apartment for a week and returned home to find it vandalized. Expensive jewelry was missing, and her credit cards, passport and other personal documents had been photocopied in a bid to steal her identity. All told, the host suffered tens of thousands of dollars worth of damage.

While such intentional damage is rare, it’s possible that a guest may unintentionally damage your home or its furnishings.

Liability claims may be a larger concern. If a guest slips and falls on your property or otherwise is injured, he or she may sue you to recover medical expenses. With a typical houseguest, your insurance company would cover the claim without question. But when you’re renting your home through a short-term rental site, this often is a gray area for insurers, and some may refuse to pay a claim.

What protection do the sites offer?

Airbnb -- which has more than 100,000 short-term rental listings worldwide -- created its own insurance coverage after receiving bad press about the vandalism case in San Francisco. Now, the company offers a free Airbnb guarantee, which covers property damage by Airbnb guests up to $50,000.

Other websites for short-term rentals, including HomeAway and Craigslist, do not provide such guarantees.

While Airbnb’s policy is helpful, it does not offer liability coverage. Additionally, you won't be covered for damages exceeding $50,000 -- if, for instance, a paying guest accidentally burns down your house.

In these circumstances, you’ll need to turn to your homeowner's or renter’s insurance policy for help.

Insurance coverage for short-term rentals

So, should your home insurance company cover a claim triggered by a short-term renter? Opinions are divided.

Amy Bach, executive director of nonprofit consumer advocacy group United Policyholders, says she thinks such claims should be covered.

“I don’t think there are any exclusions that I’ve seen in homeowner’s or renter’s policies that would give an insurance company a legitimate reason to deny a claim,” she says. “The fact that they’re a paying guest shouldn’t make a difference. Unless there’s a clear exclusion, the company wouldn’t be justified in rejecting a claim.”

Loretta Worters, a spokeswoman for the nonprofit Insurance Information Institute, says claims stemming from a short-term rental should be covered on a case-by-case basis.

“Depending on the rental scenario, your standard homeowner’s policy may not cover losses incurred while your home is rented out, and you may require a more specialized insurance policy,” Worters says.

Hosts have had mixed experiences with coverage related to short-term rentals. On the HomeAway community forum, several hosts say their insurers told them that their homes wouldn't be covered for short-term rental claims, while others said it wasn’t a problem. For those who might need additional insurance, policies could be costly. One host bought a policy with specialty insurer Lloyd’s of London at triple the cost she had paid for home insurance.

How to make sure you’re protected

To guarantee you won’t be stuck with a huge bill if something goes wrong with your guest’s visit, it pays to be prepared.

Before listing your house on a website, call your insurance company to find out whether you’re covered for short-term rentals, Worters recommends. Send a follow-up email outlining the insurance representative’s response, and ask for confirmation so that you have the details in writing.

If your insurance company refuses to cover claims related to short-term rentals, you may need to buy an additional coverage. Worters says landlord policies, which often cost 25 percent more than traditional policies, can cover all claims resulting from short-term rentals.

You’ll also need to look over the terms and conditions of the short-term rental site you’re using to see what role it plays in insurance claims. Although Airbnb offers a $50,000 property damage guarantee, it takes no responsibility for liability claims; most competing sites offer no coverage at all.

When accepting guests, screen them carefully to avoid potential fraudsters. Established rental sites like Airbnb, HomeAway and Roomorama include user profiles, so you’ll be able to check out guests' information such as testimonials from previous hosts. If you use a free service like Craigslist, you’ll need to do your own homework on potential houseguests.

As an additional safeguard, you may want to recommend that your guest buy his or her own renter’s insurance to protect personal property. “As the landlord, your coverage is only on the structure itself and your financial interest in it,” Worters says. “Your tenant’s personal possessions are not covered under your policy.”

Uncertain future

To date, there is no standard protocol for how an insurance company should treat a short-term rental, but that may not be the case much longer.

Bach says she believes that as insurance companies receive more liability claims against short-term rental hosts, they may crack down on coverage and begin adding exclusions so that they’re not obligated to cover this type of claim. For the time being, however, you’re most likely covered -- but call your insurance company to confirm, so that you don’t end up with a massive bill if your Airbnb guest breaks a leg on your stairs.

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