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A surprise risk you’re facing if you rent out your home this Fourth of July

  • Six out of 10 homeowners don't know if their insurance policy covers short-term vacationers.
  • About 40 percent don't know who is responsible if a guest gets hurt on their property.

If you're hoping to make a small fortune from renting your humble abode during the holiday weekend, make sure you're not putting yourself at risk for a giant lawsuit.

More than six out of 10 homeowners polled by Assurant had no idea whether their dwelling's insurance policy would cover vacation renters. The New York-based insurance company polled 1,003 adults in early June.

Forty percent of the homeowners were also unsure of who would be legally responsible if a guest were injured on their property.

Here's a news flash: You — as the host — are likely on the hook if someone gets injured at your home.

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Mark D Callanan | Getty Images

Most likely, your existing home insurance policy doesn't cover claims for guests at your beach cottage.

"Whether it's something as small as someone breaking dishes in your home, breaking your TV or falling off your deck, you might find policies responding in different manners to these events," said Kunal Malhotra, vice president of innovation at Assurant.

Here is how your homeowner's coverage is likely to fall short if you rent out your home.

Limits on short-term rentals

Before you list your home on a short-term vacation site, be sure that you're permitted to do so in the first place. Many homeowners associations, for example, bar these short term rentals.

Some insurance companies permit policyholders to rent their dwellings to guests for brief stays, say a week, provided you notify the company before you host, said Loretta Worters, vice president at the Insurance Information Institute.

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Larry Dale Gordon | Getty Images

You may have to add an endorsement or a rider to your existing homeowner's policy to cover losses from having guests at your home.

In the event your nascent bed-and-breakfast takes off and you start hosting short-term visits on a regular basis, you'll have to upgrade to a hotel insurance policy, said Worters. This is because your standard homeowners policy won't cover business activities.

Rentals to one guest for an extended period of time will require a landlord policy to insure the dwelling.

Boosting liability coverage

You wouldn't want to face financial ruin in the event a guest is injured on your property and decides to take you to court. Check with your insurance company to see if you need more liability protection than your current policy provides.

Some short-term vacation sites provide liability coverage to homeowners who list their dwellings with them. For instance, Airbnb provides this insurance up to $1 million per occurrence.

Meanwhile, Vacasa, a vacation rental site, offers $1 million in liability coverage and up to $10,000 in contents coverage through an arrangement with Assurant.

You should still step up your own liability coverage in case you wind up in a legal dispute with a guest who gets hurt on your property.

There are limits to the extent vacation sites will cover you. "This is supplementary," said Assurant's Malhotra. "If you're renting a home for five nights a month, you get additional coverage for those five nights."

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