Homeowner’s insurance may not be sufficient to protect landlords from potential legal liability
Nearly 7 million, or close to 3% of Americans own rental property as an investment– while another 1%, or 3 million, rent out all or part of a property they own on Airbnb and similar sites, to say nothing of the thousands (or millions) more who unofficially rent to friends or advertise their rental by word of mouth. All this renting is generally a good thing; homeowners make some extra cash to pay bills and save for retirement, while tenants can find a wider variety of rental options than ever before– catering to just about every location, preference, and price range.
Despite the benefits of owning rental property and the ease of sites like Airbnb, an increase in rentals (especially short-term ones) means that an increasing number of people may not be fully covered by their insurance company in the case that something goes wrong. Many people who rent out their property don’t know that their homeowner’s insurance may not cover everything, and while services like Airbnb do provide a certain degree of liability coverage, it would be unwise for landlords to rely solely on these for financial protection, as they often have a variety of limits and exceptions.
Renters insurance can help landlords protect their investment– whether it’s an entire apartment building or a small guestroom
If you rent out part or all of a property you own, you’re a landlord– and you could seriously benefit from landlord’s rental insurance. If a disaster were to seriously damage or destroy your rental property, a regular home insurance policy might cover the cost of repairs or reconstruction– however, you likely won’t see a dime of the income you’ll lose during the repair process. And, while that might not be important for some investors, those who are retired, live off rental
If you rent out part or all of a property you own, you’re a landlord– and you could seriously benefit from landlord’s rental insurance. If a disaster were to seriously damage or destroy your rental property, a regular home insurance policy might cover the cost of repairs or reconstruction– however, you likely won’t see a dime of the income you’ll lose during the repair process. And, while that might not be important for some investors, those who are retired, live off rental income, or are still paying a hefty mortgage bill could be seriously impacted, especially if the repairs last more than a few months. Landlord’s insurance can help cover loss of rental income if your property becomes uninhabitable due to a disaster– saving you serious money.
Traditional homeowner’s policies often don’t cover any commercial activity within a home
Many people who rent a room inside their home (or a cottage or guesthouse on their property) mistakenly believe that their homeowner’s insurance covers them for any liabilities a guest sustains on the property– but often, that simply isn’t the case. Most insurance companies surveyed say that their traditional home policies do not cover commercial activity of any time– and that includes renting a room on Airbnb.
In some cases, individuals renting a room attempt to file a claim for damages resulting from renting their home– without informing the insurance company that they did so. This is a bad idea, because if your insurance carrier discovers you lying, they could invalidate (or void) your entire policy– leaving you without coverage altogether– and it’s not hard to find evidence of past Airbnb dealings online. All the insurance company has to do is to check your profile. Even if you take it down, it’s not hard for insurance companies to figure out the truth, so it’s best to be upfront from the start about your rental activities.
Airbnb says it offers $1,000,000 of liability coverage– but you shouldn’t depend on it for protection (and here’s why)
In 2014, Airbnb announced that it would offer $1,000,000 in secondary liability coverage to hosts, as part of it’s new ‘host protection guarantee.’ However, before you celebrate and decide to forget everything in this article, it’s important to realize that Airbnb’s coverage might not cover you. First, it’s essential to note that this is secondary coverage– which means that it only kicks in if your primary insurance carrier refuses to cover you.
Unsurprisingly, Airbnb mandates that hosts go through their primary insurance provider first, knowing that many of them won’t cover any commercial activities in the host’s home. So, what does this mean? In some situations, it means that you could get stuck with little to no protection in the case of a costly lawsuit, especially if your primary insurance does cover you, but only compensates you for a small amount of the damage. Either way, trusting your insurance coverage to a secondary policy should be a last resort– not a first line of defense.
Rental insurance is a great way to keep landlords protected from a variety of financial risks
Bottom line: If you’re a landlord and you don’t have a rental insurance policy, you’re putting yourself at unnecessary financial risk. Rental insurance can help reduce your financial suffering from everything from lost rental income after a natural disaster to an expensive lawsuit from a slip and fall. In fact, renter’s insurance is so important that some landlords even require that their long-term tenants take out a similar “tenant’s” rental insurance policy, which can also help protect the landlord from any costly incidents, accidents, or lawsuits that occur while the tenant resides at the landlord’s rental property.
While it doesn’t usually make sense for landlords renting short-term Airbnb’s to mandate that their tenants carry insurance, it can be a good idea for rentals and leases lasting 1-2 years or more or apartments or buildings rented with expensive furnishings, state-of-the-art appliances, or other property that belongs to the landlord. That way, the tenant can take on some of the financial risk of caring for the property, especially if they’re benefiting from the use of the landlord’s property, furnishings, or appliances. So, no matter whether you rent out a room or a mansion, make sure you’re completely covered by your insurance policy or policies. Otherwise, you could be in store for an expensive surprise.
To learn more about how to protect your property (or rental property) from serious financial risks, contact Avante Insurance today for a free consultation.