Finding a vacation home: Deciphering between renters, landlord, Host Protection insurance

Finding a vacation home: Deciphering between renters, landlord, Host Protection insurance
2016-06-29 05:18:02 UTC

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Going on a family vacation? Heading out for a school retreat? What better way to utilize empty space than letting vacationers temporarily rent the property? Otherwise tenants (or owners) will just be paying for empty space. As intriguing as extra profits may sound, there are some drawbacks and security concerns to be aware of, especially due to new regulations in certain cities, such as Chicago.

Chicago tenants are already concerned about the “burglar’s paradise” registry thanks to a new online registry for home-sharing listings. But that’s not the only regulation to be aware of.

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Airbnb runs down listing regulations for tenants to abide by, including whether to list their units as “vacation rentals” or “bed and breakfast.” The Hotel Accommodations tax of 4.5 percent must be paid, even if the “vacation rental” is not a real hotel. The Chicago City Council recently passed regulations about the amount of vacation rentals that can be listed at one time: no more than one unit for five units or less, and no more than six units (or 25 percent of the building, whichever is less) for larger locations.

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While neighbors may not be thrilled to constantly see out-of-towners come and go in nearby locations, and possibly causing grief between tenants and landlords, vacation hosts should also be on the up and up for another kind of safety: renters and/or landlord insurance.

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Tenants as vacation rental hosts: Some landlords require tenants to have renters insurance in the event of an emergency (ex. possible theft, vandalism, smoke, windstorms, water damage or fire). But for short-term stays, should landlords also require tenants to have renters insurance for short-term guests, too?

"This is a cost benefit analysis," said Joe Bogdan, attorney and owner of Silvershift law firm, to Gurulife's Shamontiel. "The lawyer in me says 'absolutely' because insurance that protects me but is paid for by someone else is pretty much a no-downside proposition."

Bogdan is also a property owner of a house used for VRBO, along with a few income properties.

"The businessman in me, though, says 'unworkable' because most short-term renters would rather find an alternative property to rent than go through the hassle of finding that insurance," Bogdan continued.

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                                             Photo courtesy of Joe Bogdan/Columbia College Chicago

"I also query whether such insurance is even available," said Bogdan. "What would happen if I called my [insurance] agent and said, 'Will you sell me a policy that covers a two-night, weekend rental of a place I’m going to stay in in New York this weekend? And also I want to name the owner of that property as an additional insured.' Incidentally, the entrepreneur in me says, 'Hey, selling renters’ insurance to short-term renters is an idea for a new business/industry!'"

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Renters insurance basics: Legally unless a tenant owns a building, (s)he cannot purchase landlord insurance regardless of subletting the apartment or renting out a condo, according to Bogdan.

"First, that’s probably a breach of the lease and grounds for eviction, so tenants should be careful about that, particularly if they care about not losing their place," said Bogdan. "In the application process for 'landlord' insurance, the insurer will ask questions like 'How long have you owned the property?' If the tenant, who doesn’t own the property, responds truthfully then the coverage will be denied; and if the tenant responds with a lie, the coverage could be invalidated later. The tenant acting as landlord will have paid premiums for nothing."

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While renters insurance does cover some things, not all insurance companies will be on board with covering temporary tenants.

According to an email response from Farmers Insurance: "In no instance would a person who the tenant rents the apartment to be covered on the policy ... They  [the host does] not fit the definition of an insured.  It is only in regards to acceptability are roomers or boarders acceptable.  They receive no coverage on the policy.  Also, we will not cover losses in any part of a covered dwelling that is rented to others on the renters policy or unendorsed townhouse/condo polices.  More importantly, short term rentals are not acceptable for townhouse/condo polices.  If there was a loss in [this] situation, it would jeopardize the coverage.  In all reality, our polices are not set up [for] home sharing services such as Airbnb and short term rentals."

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Assurant was also skeptical of renters insurance used for vacation rentals. According to an Assurant phone agent, when a tenant is "making money" from someone else's stay, this could limit the amount of coverage. While liability coverage may be valid while the original renter is physically there, it does not work in the same manner for a paying guest who is staying in the same rental unit. Landlord insurance was recommended as an alternative option. However, without ownership, tenants would again run into the same coverage problems mentioned above.

Renters insurance discounts: Some companies give discounts for renters who are already on top of safety devices, including carbon monoxide detectors, smoke detectors, sprinklers, security systems or have multi-policy accounts (ex. automobile insurance).

Landlord insurance basics: Landlord insurance does not cover personal items in a tenant’s residency. For example, if there is a fire in an apartment dwelling and a tenant’s personal belongings are all burned and destroyed, the landlord is not legally responsible for replacement or reimbursement of those items. This is one of many reasons that landlords may require tenants to have tenant insurance.

Landlord rental dwelling insurance covers the owner of a rental building for one to four families. Landlord rental condominium insurance covers the owner of a condo who rents it out. Condo insurance covers improvements outside of an association agreement, personal liability, personal property and legal defense from lawsuits. Renters insurance covers personal property coverage and personal liability coverage inside of a rental dwelling, including visiting guests.

Host Protection Insurance: So should vacation rental hosts get renters insurance or Host Protection Insurance?

The answer to that could be both. While the latter insurance covers accidents, if a guest stays in a vacation rental and damages furniture or something else in the condo or apartment, the tenant will still be held accountable for that. Let’s say a guest is permitted to use a tenant's exercise equipment. While running on a treadmill, the guest accidentally falls off. The guest may file a claim against the host and/or landlord for any medical damages. The tenant now has to have the treadmill fixed, and the guest will more than likely have medical bills, too.

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This claim could possibly be covered by Host Protection Coverage "in the event of third party claims of bodily injury or property damage." However, host protection insurance doesn’t cover everything, specifically these 10 cases of liability

Also, the $1 million Host Guarantee does not cover certain property, including loose money, fine arts (portraits, pictures, antique furniture), jewelry, pets and watercraft. Automobile damage is not covered by any of the previously mentioned insurances above. Storage options may be recommended. 

Before subletting a condo or apartment, it may be beneficial to all to confirm that the temporary tenant has his or her own health and auto insurance beforehand. If all else fails, at least the guest and the host should have the basics covered -- with or without the vacation.