The Airbnb Era: Do Homeowners Need Insurance for Short-Term Rentals?

The rise of Airbnb and similar platforms has changed how people use their homes now. What was once just a place to live has, for many, also become a source of extra income, both in tourist-driven offsite and urban areas alike.

But as attractive as short-term rentals may look on the surface, they raise a less obvious question: Is your home insurance actually protecting you when you host paying guests?

The answer, in most cases, is no. “Standard home insurance policies in India typically do not cover damages or losses caused by paying guests or short-term renters,” says Adarsh Agarwal, Appointed Actuary at Digit Insurance. “Renting a property is considered commercial usage, whereas standard home insurance is designed for residential use. Therefore, any risks arising from guests or short-term rentals, such as property damage, may not be covered under these policies.”

This distinction, residential versus commercial use, makes all the difference. A standard policy may cover things like fire, natural disasters, or burglary, but once a homeowner starts earning through Airbnb, insurers treat the property differently.

And that is where many homeowners unknowingly leave themselves exposed.

Know the Exclusions

One common assumption is that insurance will cover theft if a guest takes off with valuables. But this is not how policies define theft. “Theft is defined as an act committed by someone who does not have normal access to the premises,” Agarwal explained. “Since a paying guest is someone who has been given temporary legal access to the property, any theft they commit is not covered under the policy.”

For hosts who may keep electronics, jewellery, or artwork in the home, this gap could be costly.

How is liability risk (for instance, if a guest gets injured on the property) typically treated under existing home insurance?

Liability is another area where homeowners may get caught off guard.

If a guest injures themselves while staying at the property, a standard home insurance plan will not provide any coverage. Agarwal noted that “liability risk, such as a guest getting injured on the property, is typically not covered under a standard home insurance policy.”

To address this, he says, a homeowner must opt for a commercial package policy that includes third-party liability coverage. “Without it, the homeowner may end up personally liable if a guest decides to make a claim.”

Disclosures that are mandatory

The issue goes beyond coverage gaps. Not disclosing the change in use to an insurer can actually invalidate an existing policy. “Failing to inform an insurer about a change from residential use to a commercial activity like a short-term rental could invalidate an existing home insurance policy,” Agarwal cautioned.

“By not disclosing this change, the homeowner is operating outside the terms of their policy, which could lead to claims being denied.”

What should property owners do before putting up their listing?

The first step, according to Agarwal, is to evaluate whether a commercial property policy is needed. Depending on how often the home is rented out, this could be taken for a full year or for a shorter period.

In addition, homeowners should look at what kind of protections they need, such as third-party liability, coverage against loss of money, or even temporary add-ons.

One must also review the sum insured to ensure that it matches the value of the property and its contents.

Rental platforms (like Airbnb, Agoda, OYO, etc.) often do offer their own protection plans, but Agarwal says homeowners should exercise more caution with their rental properties. Protection plans on the platforms would have some limitations and may not be a complete substitute for a comprehensive home insurance policy for commercial purposes.

As short-term rental platforms expand across the country, the insurance is adapting with this change too. However, the onus lies on homeowners to be upfront and informed about their choices. It is important to understand the distinction between personal and commercial property use and keep your space insured accordingly.

For those planning to join Airbnb-like rentals, understanding where standard home insurance ends and where commercial coverage begin could make all the difference when something goes wrong.