Modern technology has made it easier for one to gain revenue from renting out their primary or secondary home as a short-term rental through an online hosting platform.
If you make your home available for short-term rental in Massachusetts whether or not through an online hosting platform, you are subject to Massachusetts law (Chapter 337 of the Acts of 2018) and required to have specific insurance coverage for the property.
What is a short-term rental property?
A short-term rental is defined as an owner-occupied, tenant-occupied or non-owner-occupied property including, but not limited to, an apartment, house, cottage, condominium or furnished accommodation, where:
- at least 1 room or unit is rented to an occupant or sub-occupant; and
- all accommodations are reserved in advance; provided, however, that a private owner-occupied property shall be considered a single unit if leased or rented as such.
In simpler terms, if you own, rent, lease, or otherwise live in a home/apartment/condo/room, and you rent it out to others for short-term use, your property classifies as a short-term rental.
Short-term rentals do not include property that is rented out through tenancies at will or month-to-month leases, or hotels, motels or B&Bs.
I am currently/am considering renting my home out for short-term rentals. Do I need to do anything special?
All operators (those renting their property) must have at least $1,000,000 (one million dollars) of liability insurance to cover each short-term rental. Even if the insurance covers damage to the property that is for $1 million, many policies have liability limits that are lower and so you would still need the full liability coverage.
If you offer your short-term rental through a hosting platform (such as Airbnb or VRBO), it is advisable to check whether the hosting platform maintains equal or greater coverage amounts than what Massachusetts law requires. If so, the hosting platform’s insurance may be sufficient and you will not need to purchase your own liability coverage. Please note the Division does not review individual Host Platform Coverages. Operators need to independently consult with the hosting platform, a licensed insurance producer or attorney to confirm the correct coverage amounts.
If you do not use a hosting platform, you may need to purchase a supplemental dwelling insurance policy for the required amount before offering a property for short-term rental. An insurance company or producer should be able to assist you with understanding your options, including umbrella/excess coverage or specialized products for short-term rentals, as well as whether the policy covers claims arising from actions of any other persons in the operator’s building that may impact the short-term occupants.
The law also requires that short-term rental operators notify their home insurance company about their intent to use the property as a short-term rental. Your home insurance company may have a legal right to cancel your coverage if you do not make them aware of this.
Why do I need special insurance to rent out my own property?
A typical home insurance or renters’ insurance policy does not cover property damage or the cost to treat an injury that occurs on your property if you are renting it to someone else. This means that if your property is being rented as a vacation home by others, and your guest starts a fire or falls down the stairs and breaks a leg, your home insurance company will typically not provide coverage for the damage or bodily injury.
I use a realtor as an intermediary to rent out my property. Does the intermediary need to be licensed with the Division of Insurance?
A producer license is required when an individual is involved in the sale, solicitation, or negotiation of an insurance policy (See M.G.L. c. 175, §§162H and 162I). Under the short-term rental law, an intermediary is a person or entity, other than an operator, that facilitates, arranges or coordinates the renting of the property. The law also includes a hosting platform and operator's agent as an intermediary.
If an intermediary or hosting platform is involved with sale, solicitation or negotiation of insurance, it must be appropriately licensed as a producer. In other words, if a realtor or hosting platform offers or sells you the required insurance or gives you advice about the insurance that you need, they need to be licensed as an insurance producer with the Division of Insurance. It is advised that intermediaries refer current and prospective short-term rental operators to a licensed insurance producer or an insurance company to discuss insurance requirements under Chapter 337 of the Acts of 2018.
Does the Division review and approve all liability insurance policies required under the short-term rental law?
Policies that are issued through the home insurance market are submitted and reviewed by Division of Insurance staff for compliance with relevant laws. Many hosting platforms, however, have coverage that is written through the surplus lines market. Home insurance coverage may be issued through the traditional home insurance market or through the surplus lines market when risks may not be covered by traditional home insurance companies.
The Division does not review surplus lines policies, nor does it have the same regulatory oversight that it may for traditional insurance companies, however, these policies are still subject to the Division’s oversight. Surplus lines policies may only be sold by qualified surplus lines brokers.
Does the FAIR Plan cover short-term rentals?
Although the FAIR Plan may offer supplemental coverage for short-term rentals, it only will cover up to $500,000 in liability coverage. Persons with such coverage may need to seek the remaining required coverage from other home insurance carriers or the surplus lines market.