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Home Insurance - Vacation Rental House

What Kind of Home Insurance Do You Need for Renting Out Your Home?

    5 minute read

    Even though the U.S. has a solid reputation of innovation and technological advances, the current generation is arguably made up of the most entrepreneurial Americans in history. More and more people are complementing their regular jobs with “side businesses” of some sort.

    It’s true that fully-employed people have always engaged in supplementary pursuits – from making and selling craft jewelry to playing in a band to providing handyman services to their community. But today, they’ve taken this phenomenon to a new level by doing such things as selling merchandise on eBay or Etsy, becoming an Uber driver and using their own cars to make money, and designing websites or other online portals on the weekends.

    The 21st Century Peer-To-Peer Economy

    Another way that Americans are earning additional income is by providing lodging space for travelers whose needs aren’t well-served by hotels or other traditional hospitality offerings. More and more people are inviting tourists into their house, apartment, condo, or even just a room – in exchange for a modest fee, of course.

    Two of the most common facilitators of these “peer-to-peer accommodations” are Airbnb and VRBO. Airbnb was founded in 2008 and helps match discount or unorthodox travelers with ordinary Americans who wish to rent out their home or extra property for (usually) a short time period. VRBO operates on the same principle but focuses on longer stays

    Home Insurance - woman tossing money in air

    A typical Millennial and her earnings from her side gig.

    in vacation homes or similar properties.

    If you are thinking about renting your condo, beach house, or vacation home to tourists, it’s vital that you obtain satisfactory insurance coverage. Otherwise, you leave yourself open to a variety of scenarios which have one thing in common: a decrease in your bank balance instead of more money in your coffers.

    Why Do You Need Vacation Home Insurance?

    The main point to keep in mind is that your standard homeowners or renters insurance that you purchased for your own home probably will not adequately cover any type of property that you are leasing to visitors. Not only may the coverage limits be too low to address various liability issues, but these policies often contain exclusions which omit coverage for any property that is being used in a business – which is precisely what you’re doing by accepting rental money from guests.

    That’s why it’s vital to acquire a separate insurance policy in order to protect yourself from the expenses you could incur in situations like these:

      • A visitor falls on the front step of your vacation home and breaks her hip – and then sues you for her medical costs.
      • A pipe bursts in your condo and floods the entire space – and also leaks into the unit below yours to damage much of its contents.
      • A thief breaks into your beachside apartment when it is unoccupied and steals everything that he can get out the door and into a large truck.
      • A tenant throws a big party and one of the guests assaults another. Chances are, the property owner will be held responsible for the health care bills of the victim.
      • A large hailstorm destroys the roof of your vacation home, and you won’t be able to rent it out again until the roof can be replaced.

    When Does Your Property Become a ‘Vacation Home?’

    Before discussing the specific types of insurance that are applicable to vacation rentals, it’s important to determine whether your property qualifies as a vacation home under federal law. That classification will have a direct impact on whether you have to purchase additional insurance for it.

    According to the Internal Revenue Service, you can rent or lease your home to tourists for up to 14 days in a given calendar year without incurring any taxes on the income you receive. As a result, you likely won’t have to obtain additional insurance as long as your homeowners or renters insurance is in good standing (though you should check your policy to make sure).

    Home Insurance - calendar

    Count the days on your calendar that your home is being rented. If it’s less than 14, you don’t have to worry about the tax man grabbing your revenue!

    But if you do receive income from guests for 15 days or more during the year, the IRS will consider you to be a “landlord.” Along with the tax consequences you’ll deal with, you’ll also probably have to purchase landlord insurance to safeguard yourself against liability costs and losses due to theft, fire, vandalism, and other calamities.

    Types of Landlord Insurance

    If you are working through VRBO or a similar vacation home-listing service, you’ll almost certainly need to buy landlord insurance. There are many different types of coverage you can get, including:

    • Liability coverage – in case a guest gets hurt while staying at your property and incurs medical expenses and/or files a lawsuit against you.
    • Property damage protection – in the event your property is damaged by fire, wind, storms, theft, vandalism, or even the people who rent it out.
    • Replacement cost coverage – if your rental or its contents ever do suffer damage, you’ll be compensated for the cost of purchasing new items (or property).
    • Loss of income – in order to replace the revenue that you are losing in rent if your property is damaged or otherwise rendered uninhabitable for a particular time period.
    • Umbrella coverage – as sort of a “backup plan” in case your other insurance policies don’t cover certain events or the coverage amount isn’t big enough to compensate you (or your guests) for damages incurred.

    Some policies provide all of these types of coverage, while others only focus on one or a few of them. Be sure to check with your insurer to see what policies and coverages are offered.

    Is Airbnb’s Coverage Adequate?

    If you are working with Airbnb to rent out a room or home to guests, there is another option that is available to you. The company offers Host Protection Coverage that is designed to protect property owners from common occurrences that are associated with vacation rentals. This plan provides up to $1 million in coverage per listing location to protect you against bodily injury claims by guests or property damage as the result of someone who booked their stay through Airbnb.

    It’s important not to confuse Host Protection Coverage with Airbnb’s “Host Guarantee” that it gives to everyone who lists their properties with the service. The Host Guarantee does reimburse property owners for damages to the contents or structure of the rental unit that are caused by a guest. But unlike Host Protection Coverage, it does not safeguard property owners from liability claims lodged by injured parties, HOAs, or adjacent property owners.

    So for instance, if your Airbnb guests threw a wild party, the Host Guarantee would cover the cost of a broken lamp or burned stove. But unless you had Host Protection Insurance, you would still be on the hook for the medical costs incurred by a bystander who suffered burns – as well as repair costs for smoke damage to the adjacent condo.

    Home Insurance - group of friends at a party

    Sure, it looks low-key now – but check back in a few hours, and this party’s gonna be out of control.

    AIS Can Help

    It’s understandable if all of these policies and rules are a bit confusing to you. Here’s the good news: you can get help from a friendly, experienced associate at AIS Insurance. All AIS representatives are knowledgeable about the ins and outs of vacation rental insurance, and they can help you find the best price on a policy that suits your needs.

    So don’t let the mystifying world of vacation home insurance prevent you from earning extra income. Call AIS today to find out what you need to get covered – and then you can list your property and begin cashing those rental checks!

    The information in this article was obtained from various sources. This content is offered for educational purposes only and does not represent contractual agreements, nor is it intended to replace manuals or instructions provided by the manufacturer or the advice of a qualified professional. The definitions, terms and coverage in a given policy may be different than those suggested here and such policy will be governed by the language contained therein. No warranty or appropriateness for a specific purpose is expressed or implied.