I lease three apartments and sublease them on Airbnb (Rental Arbitrage). My landlord thinks I just have “Renters Insurance.” Last week, a guest overflowed the tub, flooding the unit below. My Renters Insurance (Lemonade) denied the claim because “business activity” is excluded, and now the building owner is suing me personally for the $40,000 water damage.
Key Takeaways
- Renters Insurance is Useless: Standard renters insurance covers your socks and laptop. It does not cover $50k in liability for a business you run out of the unit.
- No “Insurable Interest”: You cannot buy a “Homeowners” policy because you don’t own the building. You need a specific “Tenant” commercial policy.
- Lease Violation: If your insurance denies the claim, your landlord will likely evict you for violating the lease clause requiring “valid liability insurance.”
- Liability to Landlord: You are liable to the landlord for damage your guests cause to their building.
The “Why” (The Trap)
The trap is “Insurable Interest” and “Commercial Use.”
You don’t own the walls, so you can’t insure them. But you are liable for them. Standard renters policies (HO-4) strictly exclude business liability. When you arbitrage, you are a business entity. You need a policy that covers “Tenant’s Legal Liability” or “Fire Legal Liability.”
The Investigation: I Called Them
- Lemonade / Geico (Renters): I asked, “Does this cover me if my Airbnb guest floods the place?” The answer was a hard NO. “We do not insure short-term rental businesses.”
- Proper Insurance: They have a specific policy for “Arbitrage / Renters.” It covers your liability to the landlord and your business income. It costs more than $15/month renters insurance (think $100/mo), but it actually works.
- Waivo / Superhog: These are “damage waiver” products. They are good for small guest damages, but they are not full liability insurance if the building burns down.
Comparison Table: Arbitrage Coverage
| Feature | Standard Renters (HO-4) | Commercial Arbitrage Policy (Proper) | Damage Waiver (Waivo) |
| Business Liability | NO | YES ($1M) | Limited |
| Damage to Landlord’s Property | NO | YES | YES (Small limits) |
| Guest Injury | NO | YES | NO |
| Cost | ~$15/mo | ~ 100−100− 150/mo | Per booking fee |
[IMAGE: Diagram showing the relationship: Landlord (Owner) <-> Arbitrage Host (Tenant) <-> Guest, with ‘Liability’ arrows pointing to the Host]
Step-by-Step Action Plan
- Cancel Standard Renters Insurance: It is providing false hope. It will not pay.
- Get “Short-Term Rental Tenant” Insurance: Call a broker and ask for a Commercial General Liability (CGL) policy for a “vacation rental operator” that includes “Damage to Rented Premises.”
- Add Landlord as “Additional Insured”: Your policy must list the building owner. This proves to them you are covered and protects them if they get sued because of your guest.
- Verify “Water Damage Legal Liability”: Ensure the policy covers water damage to the unit below you. This is the #1 arbitrage claim.
FAQ
Does AirCover protect me in arbitrage?
It provides liability coverage, but relying on it as your only protection puts your entire business model at the mercy of an Airbnb adjuster.
Can I use an LLC for arbitrage?
Yes, and you should. Buy the commercial insurance in the LLC’s name to protect your personal assets.
What if the guest steals the landlord’s appliances?
Your commercial policy should cover “Theft of Building Property” if you are responsible for it under your lease.