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Are Short-Term Rental Homes Worth the Risk? What Owners Need to Know to Insure Their Investment Property

July 3, 2024
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Cincinnati is bustling with redevelopment projects for entertainment, beautiful parks and concert venues. Areas like this are ideal for investing in real estate for visitors to enjoy. Websites such as Airbnb and VRBO offer thousands of short-term rental home options for this very reason.

If you aren’t familiar, anyone can rent a property for a few days or a week at a time, providing the owner with enough income to pay all the bills while building equity. Many owners can use this as a steppingstone to build their financial portfolio.However, as with any investment opportunity, there is potential for bigger problems lying below the surface.

There can be a significant amount of risk involved in offering a property for rent on a short-term basis through a rental app or a website. Property damage, injuries and violations of city ordinances by the renter are just a few of the things that could go wrong.

Consider a recent case in which a house near the University of Cincinnati was rented to a woman for a single night. A party ensued and ended with one fatality and another injured, which could lead to legal action. The property also sustained damage.

Potential risks could have huge implications for insurance.

Are you really covered?

A home that is offered for rent on a short-term basis requires customized insurance because such properties can be considered a business exposure in the eyes of the insurance company. Personal home policies typically exclude similar business exposures, so adequate coverage must be crafted and heavily underwritten.

If buying coverage as a part of your personal insurance portfolio, make sure you’re aware of any exclusions. Notify your customers of these exclusions as well.

If coverage is granted, there could be restrictions for personal injuries, vacancies and contents of the home. A thoughtful conversation about your vulnerabilities will be crucial.

Selecting a knowledgeable insurance agent or broker/risk advisor can make all the difference.

Your options

Speak with a personal risk advisor to see what options are available to you before you invest in a short-term rental. Will your current insurance carrier take on this new risk or will a specialty policy be needed?

An insurance carrier may make an exception for long-time customers, larger portfolios or for long-term tenants. Others may need to pivot to their non-standard affiliate to place the coverage. If you obtain a policy, review the coverage and its limitations, then share them with the renter.

If you plan to purchase several properties for this intent, you may be directed toward purchasing a commercial insurance policy. This type of policy is better designed to manage frequent vacancies, larger revenue streams and the buying and selling of real estate.

Last but certainly not least, confirm your umbrella or excess liability policy (whether personal or commercial) will provide coverage for a short-term rental. In the litigious society that we live in, this extra liability coverage is the most important piece of your asset protection.

If you are considering the purchase of a short-term rental property, consider how much risk you are willing to take on.

Weigh the pros and cons of listing it on a vacation rental site versus with a management company that thoroughly vets the tenant. Management companies are often viewed by the insurance companies as a lower risk because they have stricter requirements and provide a watchful eye on the property when the owner is away.

The experienced team of personal risk advisors at Oswald can help you gain the proper knowledge and guidance to protect all of your personal assets.

Oswald Companies can help you obtain the right coverage for your business and for your life.


For more information, please contact me below or learn more on our Personal Risk page.

Property & Casualty - Personal Risk
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