The Airbnb experience is really awesome!
For those who have an extra room in their house, or even a second house altogether, perhaps the thought of utilizing it for short term rental use, such as Airbnb or VRBO has crossed your mind as a way to generate some extra fast income. But what about the insurance? Is my home covered? Do I need special “Airbnb Insurance”?
It all sounds like a fantastic idea, and Airbnb makes it so easy on their website to list your room or entire home to potential renters. As I was doing some research and navigating on their site, I was extremely impressed! I wanted to start planning a trip, that’s how good of an experience it was. I have always heard great things about Airbnb as a company, they are innovative, disruptive, and seek to generate a great user experience. Very similar to the mindset and approach that we take as an insurance agency.
Airbnb is a BIG deal!
I was curious, so I hoped on the website and I wanted to see just how many possible listings were available in my area today. In Solano county, I have 86 options to choose from if I wanted to stay the night somewhere. 86 inexpensive options for one night in my county is a lot! I did some more digging. I found that there are 100 million users according to Bloomberg. The company has a $30 billion valuation, and has over 1 million stays per night. Not bad for a company that started in August of 2008
Meet i80 Insurance Client: Spider Rico
DISCLAIMER: Spider Rico isn’t our clients real name. The name actually comes from the first Rocky movie as the guy Rocky boxes in the opening scene. I have just always wanted to use that name and figured we can switch out our clients real name with this really cool name.
What prompted this entire investigative query, was Spider was coming up for his annual homeowners insurance renewal. As is our custom, we like to evaluate things and make sure we are doing the very best we can in providing the best coverage at the best rate. This process allows us to ask some questions to see what might be different this year. We understand that most people make changes in their lifestyles and homes, and the insurance agent is often the last to know.
In this review, my Spider asked me if he would be covered on his policy if he rents out some rooms in his home via Airbnb or VBRO, or if he needs special Airbnb insurance?
I had to thank him for letting me know that he was doing this, but I also had to break the bad news to him that “NO” you are not covered if you’re using your home or rooms as a short-term rental location. My client thanked me for telling him, and promptly tasked me with looking to see what we could do. (MORE ON THAT LATER)
Why Won’t My CA Home Insurance Cover Me?
Your standard California home insurance policy is typically written on one of two policy forms. You have the standard, tried and true HO3 form. I’d venture to say that 80+% of all home insurance in California is written on an HO3 form. An HO3 policy simply means you’re covered on the structure of your home in the event you have a loss that is caused by certain events (fire, smoke, theft, falling objects, etc). The other form is called an HO5 form. Just like the number 5 is greater than the number 3, think of this policy as offering greater, more broad coverages, and expands other lines of coverage pertaining to your home. Simply put, it’s a type of home policy that offers superior coverage over an HO3 policy.
These policies specifically exclude ANY business use on the property. The standard H03 policy form defines “Business” as this:
Business. The policy defines “business” as a trade, profession or occupation engaged in either full-time, part-time or occasionally, or one or more activities for which an insured receives no more than $2,000 in total compensation for the 12 months prior to the beginning of the policy period. This is sweeping language that covers a multitude of businesses, including innkeeper.
Insurance policies will reject coverage in the event of a claim if/when they find out you’re using your property as a short-term rental space.
Back to Spider Rico
When I mentioned to his current insurance carrier that Spider was indeed using his home and rooms for Airbnb, that carrier told me they would have to cancel his policy immediately. I thought to myself “no worries” this is where being an independent insurance agent comes in handy. When one carrier says “no” someone is bound to say “yes”. I called every carrier in my arsenal, they all said “no way Jose”. All declining due to the same reason “business use”
I am not one to just take “no” for an answer. I am also not one to just give up when things don’t go my way. I am tenacious this way because I want to know the answers and be a hero by finding a solution. I really enjoyed this situation, mainly because I was able to learn so much about something that I have never really looked into.
Airbnb Insurance (Host Protection Insurance)
I was able to find out that as someone who is an Airbnb host, Spider actually had some insurance. I began to get very hopeful that perhaps Airbnb already had this covered and there was nothing more that I needed to do. BOY WAS I WRONG!
If you’re someone who is not familiar with insurance, how it works, and policy definitions, you’d read this policy and think “I am good to go” However, after doing just some BASIC reading, I found some rather large, gaping holes in this policy, that should cause concern for anyone relying on it, and only it.
- Coverage is limited to $1 million per occurrence; $2 million per location. The policy aggregate is $10 million for all insured locations in the U.S
What this means, is that if every policy holder in the country has a claim, Airbnb will only pay out no more than $10 million for the entire year. YIKES! You should hope that your claim is early in the year (sarcasm)
- Coverage is in excess of any other available coverage. The host must submit the claim to his Homeowners insurance and the claim must be denied by that company before the Airbnb insurance will pay. Presumably, the Homeowners insurance may also be cancelled for business use.
This means, you would have to file a claim FIRST with your home insurance company. You would have to wait until that claim is denied (it would be) until the Airbnb insurance policy kicks in. As someone who has dealt with thousands of claims over the years, I know first-hand that when a homeowner has a claim, the first thing they want to do is be given an unnecessary runaround, followed by a waiting period (more sarcasm) Then consider the fact that once you file the claim with your existing policy, they turnaround and cancel you.
- The summary document lists these other “key” exclusions: (1) intentional acts (of the host or any other insured party), (2) loss of earnings, (3) personal and advertising injury, (4) fungi or bacteria, (5) Chinese drywall, (6) communicable diseases (7) acts of terrorism, (8) product liability, (9) pollution, (10) asbestos, or lead or silica, and (11) insured vs. insured (i.e., host sues Airbnb or vice versa).
- The coverage is limited to an actual stay, not a booking. No show — no coverage. Overstay or early arrival? No coverage.
The policy states that coverage is for the guests who might be injured, or sick while staying in the home. My question is, what coverage is there for the homeowner? Any?
What happens is the guest causes a fire in the kitchen? What if it’s worse? What if the guest burns the whole house down? What happens if the guest finds a weapon hidden in the home and commits a crime?
Vacation sites and services offer a fantastic experience for guests, and a great way for hosts to earn money. Their innovation is something to marvel at from a business aspect. However, when it comes to protecting the things that matter the most to you, Our advice is to seek out an insurance professional.
The California Airbnb Insurance Coverage For Spider Rico
In researching options, we found some answers and solutions for Spider and all our clients who use services like Airbnb. We are able to secure specific a specific Airbnb insurance policy with special endorsements that protect our vacation rental clients if/when they choose to rent out parts of their home. These policies that we can write provide coverage for the hosts home and structure. The coverage protects against fire, theft, vandalism, smoke, hail, ect. Think of it as coverage for everything except earthquake and outside flooding.
Our California Airbnb insurance policy also covers your liability as a homeowner. If you’re found liable and/or negligent in a situation where someone is injured, these polices will provide coverage.
We were thrilled to be able to offer Spider an Airbnb insurance policy that properly protected him. With this newfound product knowledge, we’re comfortable offering assistance and guidance to any California resident who participates in any vacation site service.
To find out what a tailored Airbnb insurance protection policy looks like for you and your California vacation rental, please fill out this form which provides us the important data to provide you with an estimate
i80 Insurance Solutions is a proud independent insurance agency located in Vacaville CA. We are dedicated to serving our clients by providing the very best protection options at an affordable rate. We specialize in California auto, home, life, and business insurance.