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Sharing economy poses risks as well as rewards
Published Date 5/24/2018
While the car and home-sharing economies may be a point of irritation to traditionalists (taxi drivers and perhaps the neighbors of AirBnb landlords), it seems clear it’s not going away any time soon.
If you, like so many others across the nation, are considering turning all or part of your home into a short-term rental property, however, there are a number of things to consider before taking that leap.
As the home-sharing trend grows, those homeowners who participate are essentially becoming small business owners, meaning legal as well as financial issues enter the picture. At the top of this list are both risk as well as liability protections. But if this is your first business, you may have dollar signs in your head but have little experience in dealing with risk.
In a 2017 article, Entrepreneur Magazine cited a survey by global risk solutions provider Assurant that revealed nearly two-thirds of homeowners were uncertain whether their homeowners’ insurance policy covers vacation renters, while 55 percent said they have no idea who is responsible or liable if something goes wrong.
Although most people claim to follow the rules when home sharing (such as staying within the guidelines specifying the maximum number of guests or staying past check out time), exceptions can wreak havoc. This means owners need to prepare for disaster and act accordingly.
No matter which insurance policy you have in place, make sure you sit down with your insurer to determine the limits of your policy. Some may not allow more than a few day’s stay by your vacationing tenants or require an endorsement or rider to an existing homeowner’s policy to cover losses from having a limited number of short-term rentals. This can indeed result in higher premiums or even a policy being canceled. But it’s better to know than not know what lies ahead with a decision of this kind. It’s likely that no matter what, an insurance policy upgrade will be required.
According to the article, the biggest misunderstanding when it comes to home-sharing protection is the need for “commercial use exclusion clauses” and the $1 million policies marketed by home-sharing companies.
Most insurers see renting out a home on a regular basis as a commercial enterprise, and many will deny claims based on a commercial use exclusion clause in the homeowners’ policy. That means you — the owner — are liable if someone gets injured dragging their luggage up the stairs or burning their hands on the toaster oven. Some policies may even indicate that “occasional home-sharing” is allowed, but in very vague terms — not enough for you to assume they have your back. Unless you want to test this out the hard way, it’s prudent to get information like this ahead of time, taking the time to note your policy’s long list of terms, conditions, and exclusions.
Working with your insurer, you can customize your policy, specifying the maximum number of nights per month it will be available to rent, allowing for liability coverage differentiating between a condo and a single family home, and even a policy that will reimburse lost future revenue due to guest damage.
As in any business, there are risks as well as rewards to profiting off this home-sharing (ad)venture. The key here is making sure you are prepared for the worst while hoping for the best.
Source: Entrepreneur, TBWS