I built a tiny home in my backyard to pay off the mortgage. I listed it on Airbnb. A guest slipped on the ladder to the loft and broke their leg. They sued me for $50,000. I called my homeowners insurance. “We insure a private residence,” they said. “Short-term rental is a business activity. You have no coverage.”
Key Takeaways
- The “Business Activity” Exclusion: Personal homeowners policies strictly exclude liability arising from business pursuits. Airbnb is a business.
- Airbnb’s “AirCover” is Not Enough: Airbnb offers $1M in liability, but it is secondary and notoriously hard to claim against. It often denies claims if you violated any platform rule.
- You Need a “Short-Term Rental” Endorsement: Some carriers (like Allstate or Farmers) allow you to add a rider for “occasional rental.”
- Dedicated Commercial Policy: If you rent it frequently (more than 30-60 days a year), you likely need a commercial landlord policy specifically for vacation rentals (e.g., Proper Insurance).
The “Why” (The Trap)
The trap is “Frequency of Rental.”
Insurers distinguish between “occasional” (renting it out for 2 weeks during the Super Bowl) and “business” (renting it out every weekend).
The risk profile of an Airbnb is high. Strangers don’t know the quirks of your tiny home (steep stairs, composting toilet). They get hurt. Personal policies are not priced for this risk.
The Investigation (My Analysis of 3 Carriers)
I looked for the best coverage for a tiny home host.
Proper Insurance
- The Specialist: They write a dedicated commercial policy for vacation rentals.
- The Coverage: It replaces your homeowners policy entirely. It covers liability, bed bugs, loss of income, and squatter damage.
- The Cost: Expensive (~$2,000 – $3,000/year), but bulletproof.
Foremost
- The Option: They offer a “Landlord” policy for tiny homes, but you must specify “Short Term Rental.”
- The Limit: They may have restrictions on “trampolines” or “lofts” (see Loft Injury article).
Slice (On-Demand)
- The Gig Option: “Slice” offers insurance you turn on only for the days you have guests.
- The Reality: Good for very occasional hosts, but can be pricey per night.
[IMAGE: Screenshot of a policy exclusion reading “Bodily injury arising out of the rental or holding for rental of any part of any premises…”]
Comparison Table
| Feature | Homeowners Policy | Host Protection (Airbnb) | Commercial Rental Policy (Proper) |
| Liability | Excluded | $1M (Secondary) | $1M+ (Primary) |
| Building Damage | Excluded | Covered (with gaps) | Covered |
| Loss of Income | No | Limited | Yes |
| Squatter Eviction | No | No | Yes |
Step-by-Step Action Plan
- Call Your Agent: Ask hypothetically: “If I were to rent my ADU on Airbnb, would I be covered?” If they say no, ask for the “Short-Term Rental” endorsement.
- Quote “Proper Insurance”: If you are serious about the business, get a quote from Proper. It is the gold standard for Airbnb.
- Inspect for Safety: Put grip tape on the ladder. Install a handrail. Put a fire extinguisher in the kitchen. Reduce the liability risk physically.
- Read AirCover Terms: Understand what Airbnb covers. It is a backup, not a primary strategy.
FAQ
Does this cover guest theft?
Commercial policies often do. Standard policies do not.
What if I rent it long-term (6 months)?
That is a standard “Landlord” (DP-3) policy. It is much cheaper and easier to get than Short-Term Rental insurance.
Can I require guests to buy insurance?
You can suggest it, but you can’t force it easily on platforms like Airbnb.