A pipe burst in the upstairs bathroom during a guest’s shower. The water damage is $15,000, which is bad, but the real crisis is that I have to cancel the next 8 weeks of peak-season bookings—a loss of $12,000 in income. My insurance company says they only pay “Fair Rental Value,” which they calculated at $1,500/month based on long-term rental rates.
Key Takeaways
- The Valuation Gap: Standard policies pay “Fair Rental Value” (what an unfurnished home rents for annually). Airbnb income is “Business Income” (much higher).
- Actual Loss Sustained: You need a policy that covers “Actual Loss Sustained”—the actual dollar amount of bookings you had to cancel.
- The 72-Hour Waiting Period: most “Loss of Income” coverage has a waiting period (time deductible). You eat the first 3 days of loss.
- AirCover’s “Rebooking” vs. “Payout”: AirCover might help the guest find a new place, but they do not pay you for the bookings you couldn’t fulfill due to maintenance issues.
The “Why” (The Trap)
The trap is “Fair Rental Value vs. Business Income.”
A standard Landlord policy (DP-3) is designed for long-term tenants. If the house burns down, they pay you what a year-long tenant would pay (e.g., $2,000/mo). But as an Airbnb host, you might make
4,000/mo) is uninsured loss unless you have “Business Income” coverage.
The Investigation: I Called Them
- Proper Insurance: They insure the income as “Business Income.” I asked, “If I lose $10k in July bookings, do you pay $10k?” They said yes, provided I can show the booking history or comparable data.
- State Farm (Rental Dwelling): They stick to “Fair Rental Value.” The agent said, “We look at the local market for a 3-bedroom rental, not nightly rates.”
- Airbnb AirCover: They offer “Income Loss” protection only if a guest refuses to check out (squatter). They do not cover income lost because a pipe burst and you had to close the calendar.
Comparison Table: Income Loss Coverage
| Feature | Proper / Commercial | Standard Landlord (DP-3) | Airbnb AirCover |
| Valuation | Actual Business Income | Fair Rental Value (Long term rate) | None (for maintenance issues) |
| Proof Required | Booking Records/Financials | Market Analysis | N/A |
| Coverage Trigger | Covered Peril (Fire, Water) | Covered Peril | Squatters only |
[IMAGE: Screenshot of an Airbnb calendar with 2 months of dates crossed out and a ‘cancelled’ notification]
Step-by-Step Action Plan
- Keep Clean Books: You cannot claim business income if you can’t prove it. Keep P&L statements or export your Airbnb transaction history monthly.
- Upgrade to “Business Income” Coverage: Ask your broker specifically: “Does this pay ‘Fair Rental Value’ or ‘Actual Loss Sustained’?” You want the latter.
- Mitigate the Loss: You have a duty to repair quickly. If you drag your feet, the insurer will stop paying the income loss.
- Market “Long Term” during repair? No. If the house is uninhabitable, you can’t rent it. Don’t try to be clever.
FAQ
Does the policy pay for the cancellations fees Airbnb charges me?
Rarely. The policy pays for the lost income, not the penalties the platform levies against you.
What if I didn’t have bookings yet?
If you have “Actual Loss Sustained,” they might look at your historical data for that month last year to estimate what you would have made.
Is there a dollar limit?
Yes. Check your “Loss of Use” limit. It’s often 10% or 20% of the dwelling coverage (Coverage A). Ensure that’s enough to cover a 6-month rebuild.