Dangers of short-term home rentals

Renting out your home for a few weeks or months might seem like an easy way to earn some extra cash. However, it's important to weigh the risks against the rewards and make sure you have adequate home insurance before handing over the keys.

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Short-term home rentals fit best for homeowners willing to think of their home as a business as well as a personal residence, says Kimberly Smith, founder of CorporateHousingbyOwner.com, a website where owners can offer furnished homes to workers who are in a location for a limited time.

"If you love every last piece of furniture in your home and you'd be devastated if something was gone, you have to realize that that's a possibility," Smith says.

Home insurance risks of renting

Some of the risks may seem like penny-ante stuff. Renters might take a book they didn't have time to finish reading, mistakenly pack a child's video game that duplicates one they have at home or burn out an electric tea kettle that shouldn't have been put on a stove, to cite a few of Smith's examples.

Those small losses typically aren't covered by any type of home insurance policy. Rather, Smith says, they are "a cost of doing business" that must be taken into account by owners who want to rent out their own home.

Bigger risks such as fire damage or liability can be covered by home insurance, subject to the policy limits and deductibles. Insuring against these risks when a renter is involved might require an endorsement or rider to the standard policy, depending on how the original policy is worded.

As an example of a bigger risk, Smith recalls one instance in which a renter adjusted the water pressure on a home's hot water heater. The heater exploded, the renter ignored the problem, and the homeowner returned to find the baseboards and walls had soaked up a week's worth of water.

That case resulted in an insurance claim, and the homeowner was fortunate in that the full cost to repair the damage was recouped from the renter. But there's no guarantee that others will be that lucky.

Some losses are accidental. Others are deliberate and potentially more difficult for homeowners to protect against, notes Robert Eisenstein, founder and CEO of HomeRun Homes, which operates a rent-to-own property website at Lease2Buy.com.

Examples of deliberate losses include stripped electrical outlets and wiring, and theft of copper pipes, light bulbs or kitchen appliances. Some of these types of risks may be insurable. Others may not be.

Tips to avoid home insurance problems

Here are some tips for homeowners hoping to avoid insurance problems when renting for the short term:

• Be honest and straightforward with your insurance carrier. If you don't have the proper home insurance, your policy could be voided or a claim could be denied. In some cases, depending on how the policy is worded, an endorsement or rider may be necessary to add additional coverage.
  
  "Sometimes it costs as little as $100 or $200 extra to cover the fact that you have a renter in your property," Smith says. "Take the $100 or $200 and protect yourself."
  
  
• Read your insurance policy. Some home insurance policies have specific exclusions that void the policy if a renter occupies the property for more than a specified number of days.
  
  "You want to make sure you don't have any non-owner-occupied clauses or anything that states (the policy is void) over 14 days where it's not owner-occupied, for example," Eisenstein says.
  
  
• Consider an umbrella policy. Liability should be a concern as well as theft or property damage, Eisenstein adds. An umbrella policy can offer additional coverage for medical expenses if a renter or a renter's guest trips and falls or suffers another type of injury on the property.
  
  "It's definitely a concern," he says.
  
  
• Lock up your valuables. Convert a spare closet or cupboard into a locked storage area to secure your personal valuables. Jewelry and other small items can be removed to a bank safety deposit box. Recording a pre-rental video of your home is a smart precaution in case there is later a dispute over the original condition of the property, Smith says.
  
  
• Have a backup plan. Professional landlords line up more than one renter for a property, a strategy that gives the owner a fallback position if the initial renter moves out for any reason during the rental period. That's important because some homeowner policies become void if the home is vacant for an extended period of time.