Home rental on Cape Cod is nothing new. Traditionally homes were rented through our local realtors who screened the renters. Now more and more rentals are facilitated through online applications such as Airbnb or VRBO.  Does this make a difference in your insurance coverage?

It can absolutely make a difference to the insurance coverage. A homeowner policy is not designed nor rated to generally accommodate rental.  It is designed to protect the home owner’s property and liability.  So is there coverage for rental on the homeowner policy? And the answer is maybe…

Companies have varying degrees of what is acceptable for rental on a homeowner policy, and all companies can use different versions of the homeowner contract. So it is important to talk to your agent and see what your company will and will not allow.  You may need to change to a different policy such as a dwelling fire policy or a commercial landlord policy for rental coverage.  But you will lose some homeowner coverage for your personal property and liability in this transition. Making sure there are no gaps is key.

The basic homeowner contract has a business exclusion.  So if money is exchanged for rental, this is considered a business whether or not you are making a profit.  There is also an exclusion on Other Structures being held for rental.  So if your homeowner carrier follows the basic contract – there is no coverage for rental/business.

Some homeowner carriers recognize that some home rental is inevitable and make allowances in their underwriting guidelines. For example MA FAIR Plan allows up to 12 weeks of rental on their homeowner policy.  However, if it is considered a secondary seasonal home, meaning it is unoccupied for 3 consecutive months or more, they reduce the rental allowance to 4 weeks.  You need to determine what your homeowner carrier allows.

Why is Airbnb and other online rental companies creating a stir when Cape Cod has always had rentals? Traditionally rentals were week to week and done through realtors who screened candidates.  The ease of online renting is bypassing screenings and making short-term rentals of two or three days very easy to acquire.  So instead of traditionally renting 8 weeks or 56 days during the summer to 8 different families, according to Airbnb, the typical “host” rents 66 days per year.  A similar time frame, but this could be to 20-25 different renters.  More renters more probability of both property and liability claims.  Many companies do not want this extended exposure and can exclude online short-term rental from coverage.

Another issue is the State, City and Town laws now being passed regulating short-term rentals. Massachusetts lawmakers are currently reviewing a bill that would require a certificate of registration from the State and collection of taxes on the rental.  If the home renter does not comply with these new laws, the transaction is not legal.  This gives companies a basis to deny coverage as well.

Insurance companies want to know what they are insuring. So it is best to talk with your agent and find the best fit for your circumstance.  It is pointless to pay insurance premiums only to find when the claim happens, you are denied coverage.