6 things to know before signing up with a home-sharing rental site

Are you intrigued by the idea of renting a room in your home to earn extra income? You may be thinking that it’s easy money, and you can rent a room for a short time or your entire house for a long time. But before you sign that rental agreement, here are six things the National Association of Insurance Commissioners (NAIC) wants you to know.

What are home sharing websites?

There are several online solutions available that let you rent a room or your home to a stranger you meet by using an app or a website, called home-sharing solutions, explains NAIC. Home-sharing or peer-to-peer rentals (P2P) are sites like Airbnb, Roomorama, VRBO (Vacation Rentals by Owner) and HomeAway that connect hosts with guests. Guests find a property and pay for the stay just as they would in a hotel. The difference is that the property is not a licensed hotel or bed and breakfast and is often a privately owned apartment, condo or house. Anyone can register with the sites as a host or guest.

What’s the risk?

What if your guest vandalizes your property, the hallway of your condo or even your neighbor’s swing set?

What if your guest is injured on your property?

Both guests and hosts could incur costs if things go astray, NAIC says. As a host, your homeowners or renter’s insurance policies are not designed to cover accidents arising from property rental, and your insurance company may deny coverage for any resulting claims.

Although operating as an online platform, these types of rentals may fall outside your local zoning or housing laws and regulations, which could result in you being liable for a violation of your local law or code. Even if you haven’t violated any law, you might have to hire legal counsel to protect and defend yourself from charges.

Sketch of house showing rooms and contents

How can you protect yourself as a host?

NAIC reminds homeowners that accidents can happen, anytime, anywhere. Even if you take preventative measures, your tenants or guests could trip over a rug or fall over their feet, causing injury.

Most homeowners policies provide coverage if a home visitor falls and is injured. That’s likely not the case if a paying guest falls in your home, however, because your coverage may not be intended for commercial use. Without liability insurance protection from the company facilitating the host agreement, your homeowners or renter’s insurance policy might leave you with no coverage—but still liable for damages.

Homeowners policies vary, but you should be aware that they usually exclude or provide very limited coverage for homeowners who are running a business in their home. When you begin earning income from renting out your home or a room, your carrier will probably consider you as a home-based business. If you lease out a room or your entire home for profit, your insurer could claim you’re essentially running a hotel or bed and breakfast and deny coverage. On the other hand, if you seldom rent out your home, your insurer might provide coverage. A renter’s insurance policy is subject to the same limitations as a homeowners insurance policy.

To make sure you’re protected, speak with your agent about your situation and participation in this activity—preferably before you sign up with the website. If you only occasionally rent a room or your house, your current homeowners insurer might be willing to provide an endorsement to protect you, NAIC says. If you plan to rent your house for a long term or if you plan to frequently rent out a room or the whole house, however, then purchasing a landlord policy (also known as landlord property insurance or rental coverage for landlords) might be your best option. NAIC explains that a landlord insurance policy will cover your home, structures on the property, property contents that you own (such as appliances and furniture), lost rental income due to building damage, legal fees and liability protection.

Some experts recommend only renting to guests who have homeowners, renter’s or personal liability insurance and are able to show proof they are insured. Then if your property is damaged, you could file a claim under the guest’s policy.

Woman with suitcases going into house

(Photo: Irina Borsuchenko/Shutterstock)

How can you protect yourself as a guest?

Your own homeowners, renter’s or personal liability insurance policy will generally protect you even as a guest if you happen to cause damage to a host’s property. But understand that per Airbnb’s user agreement, the company reserves the right to make a claim under your homeowners or renter’s policy for any damage or loss you cause to an accommodation. Other P2P companies may have similar agreements so make sure to check their terms of use. It’s also a good idea to speak with your insurance agent or carrier before agreeing to rent the room—just so you understand your coverage and possible liability.

What else do I need to know?

Currently, Airbnb provides host protection insurance with coverage up to $1 million if a third-party claims bodily injury or property damage against you as a host. The NAIC notes that this liability insurance program is automatically applied to every listing in the U.S. and the coverage is secondary. It applies only after your primary insurance policy either settles or denies a claim. Laws regarding P2P companies vary from state to state, even city to city be sure to speak with someone who is knowledgeable about your location. Because home-sharing companies are still a fairly new phenomenon, NAIC recommends that you speak with your agent or insurance provider about your risks as a host to make sure you’re properly covered before you list your property for rent.

Where can I get more information?

The more you can educate yourself about insurance issues related to rentals in the share economy, the better, says NAIC. You should start by contacting your state insurance department to find out how it’s handling matters involving companies that facilitate property rentals to guests. For more information about insurance tips in the share economy, visit Insure U online including the Sharing Economy page.

June 13, 2016 | BY ROSALIE L. DONLON

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