In the technologically advanced world we live in today, individuals have the opportunity to rent out their home, condo, spare bedroom or other accommodations through Airbnb, which is an online hospitality company.
In regards to travellers, Airbnb can be seen as a convenient platform that is able to provide affordable and flexible alternatives to hotels. This service easily connects various rental units with prospective occupants and makes collecting payments simple and secure. Many homeowners have a spare bedroom that sits vacant; this area can now be easily transformed into a source of income.
Despite being so easy to use and the potential profit that is achievable, Airbnb is not without its risks for those who decide to list accommodations.
Potential Insurance Gaps
If renting your property through Airbnb has crossed your mind, your first step should be to contact your MIG Insurance broker to review your current homeowners or tenants insurance policy. If you rely strictly on these policies while renting through Airbnb, it can lead to gaps in coverage that can leave you financially vulnerable.
Even though your homeowner’s policy may allow you to rent your property to a guest, it is important to keep in mind that each insurer will have their own restrictions and requirements set out. Some of these insurers may require that you give them advance notice of any short term rental agreement you may be entering into. On the other hand, some insurers may require you to purchase an additional endorsement which will broaden your coverage.
The standard homeowners and tenants policies are designed and sold for personal use, not commercial use. If you are planning to rent out your property on a regular basis, many insurance companies will consider this as a commercial use of the property. In some cases, insurers may require that a commercial insurance policy be purchased for the property to be properly insured. Interestingly, many insurance companies are starting to offer home-sharing liability policies that can be purchased on a month-to-month basis.
Another alarming risk, your homeowners or tenants policy most likely won’t consider damage to your property caused by guests as a covered peril. This means that, should the situation arise, you could be stuck to foot the bill from damage caused by an Airbnb guest.
Issues with Airbnb Provided Protection
Airbnb is trying to combat theses risks for their hosts as they do offer two forms of protection through their Host Guarantee and Host Protection Insurance. While the hosts may feel that they can rely on these programs to manage their risks, the truth is there are significant gaps in these offerings.
At no cost, Airbnb backs every one of its bookings with its Host Guarantee program. Airbnb claims that this program will reimburse eligible hosts for damages up to $1,000,000. That being said, Airbnb will be the first to admit that its Host Guarantee is not insurance, should not be viewed as such and in no way, shape or form should replace or stand-in for homeowners or tenants insurance.
Payments made through the Host Guarantee are also subject to a lengthy list of terms, conditions, and exclusions. Hosts should be made aware of the following issues related to Airbnb’s Host Guarantee:
Further reading into the specific elements of the Host Guarantee offered through Airbnb can be seen here.
Host Protection Insurance
In addition to the Host Guarantee, Airbnb also offers coverage to its patrons through its Host Protection Insurance. This program will provide primary liability coverage for up to $1,000,000 per occurrence in the event of third party claims of bodily injury or property damage. Despite these claims, hosts need to be skeptical of relying solely on this insurance program for the following reasons:
Therefore, it is best to assume that with this coverage you aren’t equipped with the proper coverage. Contact your MIG Insurance broker to better understand the policy adjustments you will need to make in order to be properly and completely covered.
Considerations for Condo Owners and Renters
Even though Airbnb opens its services to condo owners and renters of apartments, there may be restrictive bylaws, homeowner association rules or lease terms that could impact one’s ability to host guests through Airbnb.
In some cases, commercial activities like renting out accommodations – even for a short period of time – are forbidden by lease or condo board policies. Even if you are allowed to rent out your condo or apartment, hosts need to be aware that this has the potential to cause friction with your neighbours. Guests are more likely to not be as respectful to common areas, act inappropriately or noisily, or make other tenants feel uncomfortable.
Local and Provincial Laws Considerations
With the popularity of Airbnb on the rise, many provinces, cities, and towns have moved quickly to regulate this industry through municipal codes or zoning regulations.
If you break these regulations, purposefully or unknowingly, you could face thousands of dollars in fines. Airbnb takes no responsibility and says the alignment with laws and regulations is the responsibility of the host. As such, it is important for everyone considering using the service to review and understand the laws and regulations in their area.
All income a person brings in is considered taxable income by the Canadian Revenue Agency (CRA); this includes income from using Airbnb. Depending on the nature and services provided to the guests, the CRA will consider money earned through Airbnb either rental or business income. Furthermore, if you happen to make more that $30,000 per year using Airbnb you will most likely need to register a harmonized sales tax (HST)/goods and services tax (GST) account through the CRA.
The Bottom Line
While the convenience and potential of profitability using the servicies of Airbnb can be enticing, it is not without its faults. Be sure you factor in all the risks associated with using these services.
Avoid the potential financial fallout by purchasing the appropriate insurance coverage; talk to your MIG Insurance broker today.