Many homeowners turned to renting their homes or rooms as a means to help makes ends meet during the Great Recession, and the last decade has seen enormous growth in the short-term home rental market. One of the leading vacation rental companies, AirBNB, was born from financial strain that the founders encountered while trying to make ends meet in their San Francisco apartment. As an increasing number of property owners begin to look at short-term and vacation renting as a means to increase their cash flow, it’s essential they are appropriately protecting the income-generating asset, their home.
Short-term rentals present a much higher loss exposure than a full-time rental for insurance companies. Increased tenant turnover, reduced tenant screening, and numerous vacant periods all contribute to a “business-like operation” that many insurers are not comfortable with. All too often though, customers, who are none the wiser, purchase landlord policies intended for a full-time tenant occupied home. As a result, these clients expose themselves to consequences such as: coverage ceasing completely, significantly reduced structure coverage, and/or having previously covered perils excluded.
There are practical steps that homeowners can take to ensure that the needed policy and coverages are in place to cover any potential claims from a short-term or seasonal rental. We recommend, that you:
• Ask your agent how much Personal Property coverage is included. Having this conversation will identify the amount of coverage there is for your furnishings in the home. More often than not, owners are surprised to learn that this limit is $0.
• Ask your agent about any vacancy clauses. If there are none, great! Otherwise, you need to know the limitations on potential vacancy periods, i.e. if there is a vacancy clause, how long is it and what is its effect on policy coverages?
• Confirm, that the proposed policy provides coverage for lost business income. What happens when there is a claim and your home is not able to be rented for an extended amount of time? It is best if your loss of income for the duration of the claim is covered. However, there are certain circumstances where this may not be available.
In addition to insurance issues, short-term rental owners face a growing number of governmental restrictions. Recently, the city of Danville, California passed a law prohibiting rentals for fewer than 30 days. It’s important that you familiarize yourself with both local legislation and the intricacies of your insurance policy. At Old Harbor, we would welcome the opportunity to provide clarity to you through analyzing your current coverage and outlining risk management adjustments that could be made.
DISCLAIMER: This article is provided for general informational purposes only and should not be relied upon for legal advice. Old Harbor Insurance Services, LLC recommends you consult your risk manager, attorney, business advisor, or insurance representative for all questions or concerns.