The popularity of home sharing has recently exploded. Airbnb says more than 50 million people have booked stays since its inception in 2008, of which more than a third (17 million) booked in summer 2015. More home sharing start-ups (e.g., VBRO, Roomarama, Homeaway) are also seeking success in this previously untapped market which offers home owners an income potential. Before signing up, however, you need to ensure that you have the proper insurance in place. Otherwise, you could be in for losses.
A home sharing or peer-to-peer experience can sometimes result in the complete ruin of a family home. A Calgary family incurred over $50,000 in damages in just one weekend in April 2015. Had they not rented out through Airbnb, their homeowner’s or tenant’s insurance would not have covered their losses.
Home Sharing and Property Damage Insurance
If you decide to rent out your premises, your own home property insurance may not cover damage from renters (e.g., flood or fire) because you are considered to be using your home for commercial purposes. Your home insurance is underwritten with the presumption that only you and your family will use the property for your principal residence. Damage by renters to your neighbour’s property or city property is not covered under your home insurance either. Instead, you could be vicariously liable to these parties.
Airbnb offers a host guarantee for property damages up to $1,000,000, but this insurance has certain limitations. If you are covered elsewhere, you are required to exhaust that policy first before submitting costs to this insurance plan. You are also personally liable for any additional costs that extend beyond the policies you are covered under. Exceptions exist in the property covered, including cash and valuables such as paintings, antiques, valuable rugs which might be covered under a home insurance policy if you opted for such coverage, had elected to appraise the valuables and you scheduled them with the insurer. Certain other losses are excepted, such as losses that occur after your guests leave (e.g., plumbers costs after a guest tries flushing a cigar down the toilet). Further, the property damage reimbursement Airbnb provides is for actual cash value and not the replacement value that is often provided in a homeowner’s policy.
Home Sharing and Liability Insurance
Home insurance protects you from liability claims made by other individuals that may be on your premises as invited non-paying guests or for damages if you accidentally cause harm to another person when you are away from your residence. However, if you rent out your home, you are not covered for personal liability from your own tenant’s or home insurance policy or from host insurance. Should the renters injure themselves or become ill (e.g., from food you left in your fridge or a severe allergic reaction from pet hair in the home), your homeowner’s policy may not take responsibility for the resulting damages or loss. Similarly, if your rental guests take their party outside to swim in your pool or the neighbour’s pool, host insurance and standard home insurance would not cover costs should one of these individuals injure themselves.
Special Considerations If Your Home Share is a Condo Unit
If you are a condo unit owner and decide to go ahead with home sharing, it is critical to check your condominium by-laws and declarations to ensure there are no prohibitions. Otherwise, you could have legal proceeding brought against you, especially if resulting damage occurs. Even if no restrictive by-laws are in place currently against home sharing, changes can occur at any time. Renters are usually perceived to be destructive and a nuisance by other unit owners, who don’t want their insurance rates to rise. Insurance rates for the condominium corporations are based on the amount of risk associated with the unit owners.
Home or Business?
Homeowners policies are rated and insured based on the normal use of a principle residence and related wear and tear. If injury or damage occurs on your premises during a home sharing arrangement, coverage is not likely to be provided under your standard homeowner’s policy.
If you advertise and regularly receive income for homesharing, then you are using the property for business purposes and can only get adequate protection through business property and liability insurance. You might also benefit from business interruption insurance, insurance for your profits and additional liability limits and insurance if you are renting out your property to groups.
Be Insurance Savvy With HDF Insurance in Alberta
Renting out your residence may seem like a good way to earn extra income unless you incur losses from failing to protect against certain liabilities. Consulting with your independent insurance broker in Edmonton at HDF Insurance can help you to decide if you want to rent out your home and, if so, how often, and what insurance you need. Contact us for more information today at 1-800-567-2048.