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Lake Tahoe real estate: Short-term rentals — long-term problems?

Special to the Sun

TAHOE CITY, Calif. — According to Five Star Insurance Services in Tahoe City, a large percentage of property owners who rent their homes out on a short-term basis may not be properly insured.

A lot of property owners don’t realize that a typical homeowner insurance policy does not cover vacation rental business activities.

Make no mistake … second homeowners could be in for a big surprise if there is a claim while the home is being used as a vacation rental.

Short terms rentals are hugely popular in the Tahoe-Truckee area, especially with the popularity of programs like Airbnb, VRBO and HomeAway.

The problem is that in the insurance world, a property that is rented for less than 30 days at a time is typically considered short-term.

Most homeowner policies carry a “business activity exclusion,” so any claim involving “business activity” could rightfully be denied.

Is a short-term rental really a business? Yes. More and more cities like Santa Barbara, Chicago and Austin are now requiring short-term rental owners to carry and pay for a business license.

In February 2015 in San Francisco, Airbnb hosts were required to pay a 14% hotel tax and carry $500,000 in liability coverage. What second homeowners and property managers don’t understand is homeowner policies were created and designed for a property that is owner-occupied a primary residence.

It’s great for the protection of a primary home against property damage (i.e., fire, theft, water damage, etc.), and it carries personal liability for the owner and their family in the event they are personally found liable for bodily injury or property damage.

The problem is that it excludes business activity or renting of the home if it’s not occasional and used as the person’s residence. When someone regularly rents a vacation rental, it’s not their residence or where they live, and it’s not considered occasional.

There are huge gaps in the traditional homeowner policy for second homes that should not be ignored. For example, what if a guest was injured while staying at your rental property and claimed you liable? Or, what if a guest damaged or destroyed your rental property as a result of a fire?

With a standard homeowner policy, these claims could be denied. Many insurance carriers will cancel policies if they discover the home is being rented on a short-term basis, typically 30 days or less at the time. If this happens, they’ll just tell you, you’re not covered.

The good news is there are now several preferred carriers that will write the type of policy that Tahoe and Truckee property owners need if they use their home as a vacation rental.

If you’re going to rent out your house, you want to make sure that the home is insured so that you, the owner, can you occupy it and also safely rent it out on a short-term basis.

This article was provided by Larry Lapkin of Five Star Insurance Services, located in Tahoe City. Email him at larry@fivestarspecialty.com.


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