Insurance for short-term rental properties like Airbnb is an issue you’ll want to look at very carefully. At first glance it may appear that you have nothing to worry about since Airbnb offers all hosts some basic coverages. These include liability and property damage policies. However there’s definitely a few pitfalls to be aware of. Fortunately there’s some reasonable solutions.
Airbnb Included Coverages
Airbnb provides what they call Host Protection Insurance, which theoretically provides up to $1 million of liability protection for hosts. This would cover you as a host, (or your landlord) against liability claims. So, for example, if a guest trips and falls on a loose stair on the patio, and breaks their arm, Airbnb would (in theory) pay for the guest’s medical bills.
Airbnb also provides their Host Guarantee, which provides coverage for your property (the space itself, as well as your possessions inside the space). Suppose a guest checks out, and you go in to inspect the space and discover that they broke a chair. You would first need to contact the guest directly (and be aware that this MUST be done BEFORE the next guest checks in, or you will forfeit any right to make a claim with Airbnb). You would need to provide documentation of the damage (photos, repair bill, etc) and request reimbursement from the guest. If the guest refuses, or you’re unable to work out an agreeable solution, then you can escalate the claim to Airbnb directly. In theory they will compensate you if the guests fails to do so.
Unfortunately, if you read the various forums about Airbnb’s insurance policies, you’ll find the kinds of stories you’d expect: people trying to get claims covered by Airbnb with minimal (or no) success. Airbnb refuses to provide any copies of the actual Liability insurance policy, for one thing. It’s underwritten by Lloyd’s of London, which is a reputable insurer, but the fact that you can’t get full policy details is a bit troubling. There’s also an aggregate limit on the policy as a whole, meaning that if too many hosts file successful liability claims in a given year, Lloyds could stop paying additional claims once that limit has been reached (even if those additional claims are valid). So you definitely run some risks by relying on Airbnb’s vague policy.
Handling Damage Issues
We’ve personally been fortunate enough that we’ve never had to use either of these Airbnb programs. We have had a few guests who’ve accidentally damaged things (spills or cranky toddlers do happen!) and they’ve generally been agreeable about working out a reasonable solution. Most people are pretty reasonable about that sort of thing, especially if you’re fair and reasonable as a host. Some “damages” like stains on bedding or towels we just chalk up to the wear and tear that goes with the business and we don’t bother addressing it with guests. You want to pick your battles and usually it’s easier to just buy a new $5 towel. But we have occasionally had situations that required extensive cleanup, or stains or tears on a piece of furniture that isn’t cheaply fixed or replaced. In those situations we’ve contacted the guest, requested some fair compensation, and been able to work it out. The key here is to be fair and reasonable. If the chair cost $250 new, and it now has a small tear in the fabric, don’t ask for $250 from the guest. If you’ve ever shopped for used furniture on Craigslist, you know that it’s only worth a small fraction of what it cost new, for one thing. Depending on the level of damage I’d probably request $40-$60 from the guest and then decide if I need to replace the chair or can just leave it as-is. Eventually the chair is going to wear out and need to be replaced anyway, so I always view these smaller claims as just putting some money toward what’s going to have to be spent normally at some point in the future anyway.
The Hidden Pitfall of Airbnb’s Insurance
There’s one other major insurance problem that Airbnb doesn’t really tell you about. Your regular homeowners (or renters) policy will almost definitely NOT cover short-term rental activity. In fact, if your regular insurance company learns that you’re listing your space on Airbnb, not only will they not cover any Airbnb-related issues, they will likely cancel your coverage altogether. Now this may be a risk you’re willing to take, as the odds that they’ll learn of any issues is probably fairly low. But imagine if a guest started a fire, and your entire house burned down, and the insurance company learned that this was an Airbnb guest and refused to pay on the claim. That’s not a situation you want to be in!
Policies and options vary from state to state, so you’ll want to start by contacting your existing insurance company and asking if they allow short-term rental coverage, or will let you add it. Some insurers may allow you to add this coverage to your existing policy. We were with Geico here in California and after some investigating, the representative told me that they don’t offer any options whatsoever (and she confirmed that they do NOT cover short-term rental situations). Fortunately there are a few third-party insurance companies that specifically cater to Airbnb hosts. We recommend Proper Insurance and were able to obtain a policy that covers our house like a regular homeowner’s policy AND provides full liability protection for any Airbnb-related issues. They do this by basically combining a regular homeowners policy with a commercial liability policy (like a regular business would have). The downside was that it ended up being almost twice as expensive as a standard policy. However, paying a couple hundred dollars more a month in order to be fully and properly insured lets us sleep a lot more easily at night! We’d strongly recommend at least looking into the cost of a policy and then make your own decision.