You’ve probably heard of ride-sharing (think Uber) and home-sharing (think AirBnB). But the “sharing economy” doesn’t stop there. Technology has made it simple for people to earn income by offering various services directly to their peers.
Need to find someone with the tools to help with a remodel? Need to use a pickup truck and a person to help move furniture? Want to rent a car from someone for a few days? There may be someone in your area willing to accommodate your needs and for cheaper than using a professional service.
Thinking of earning a few extra dollars by taking part in the sharing economy? Or maybe you’re considering making it your full-time income stream? If so, you’ll first want to educate yourself about the potential risks involved and how to protect yourself.
Liability Insurance — Always Your First Consideration
Mention personal insurance, and many people think first about their possessions and the need to protect themselves against the loss of their house, their car or other personal property. The need for personal liability insurance doesn’t often occur to people, but neglecting this type of insurance is a path to financial ruin.
Here’s why: If damaged, your own possessions can be repaired or replaced — or you can live without them. But should you cause damage to someone else’s stuff, or worse, cause injury to another person, the cost of the claim could prove severe. Furthermore, should a liability claim be filed against you, you may require the assistance of legal counsel, and it goes without saying how expensive that could be.
Liability insurance is designed to cover such claims and legal defense costs for which you and possibly others — such as a relative living in your household — become legally liable to pay. But personal insurance was never intended to pay claims resulting from your regular employment or income-producing activities. Due to the growth in the sharing economy, many carriers of personal insurance policies—such as homeowners and auto insurance — are reinforcing the intent of coverage by specifically excluding liability claims that occur while a “sharing” activity — specifically, one that is creating income for you — is taking place.
Consider the following scenario: You decide to let someone pay you to use your car. While driving recklessly, that person causes a terrible accident that injures others and damages property. As the owner of the car, you receive notice of the claim for damages and inform your insurance company. You think all is well because you’ve learned in the past that it’s OK to let other people drive your car with permission, so you expect your car insurance company to pay any damages you owe as well as any legal defense costs on your behalf.
Or so you thought. Unfortunately, you now learn that your car insurance policy has an exclusion for any damages caused in an accident that happens while your car is being rented to others. Due to the exclusion, you are now responsible for all resulting damages and legal defense costs incurred. Maybe you assumed that the other driver should have to pay for everything, but since it’s your car, your insurance policy would normally be the one responding to the claim on your behalf. Even if the other driver has adequate insurance to protect himself while driving your car, his insurance likely will not pay any costs — including damages and legal defense — on your behalf.
Property Insurance for the Stuff that Makes You Money
If you don’t have adequate insurance on your stuff, losing it because of fire, windstorm, theft or other covered cause of loss will prove both annoying and expensive. But what if the things you lose — such as your tools or a motor vehicle — are also creating income for you because you rent them to others? Then the pain of an inadequately insured loss is intensified. As we’ve explained, due to the growth in the sharing economy, many carriers are revising the personal insurance policies they offer in order to exclude losses to property that occur while the property is being used to generate income.
Consider the following scenario, related to our earlier auto example: Let’s say you decide to let someone pay you to use your car. That person gets into an accident that seriously damages your car. Your car insurance policy has an exclusion for damage that results from an accident that occurs while the car is being rented to others. You hope that the driver will pay for the damage caused, but that person doesn’t have adequate insurance or the financial resources to do so. You will be left with the repair bill.
Share, but Protect Yourself
What does your personal insurance say about “sharing” exposures? If you need help figuring this out, or to discuss what insurance solutions might be available, contact us. We partner with Trusted Choice® to help you find the coverage you need.