In today’s world, participating in a “side hustle” can take several different forms. Whether you’re traveling full time, or you live a fairly domestic life, supplementing your income by renting out your space, delivering food, or giving people a lift in your vehicle can help move the needle on some of your financial goals. Programs like Uber, Lyft, or Airbnb are incredibly popular right now, and with good reason!
Being able to put something you already have - like a spare room, vacation home, or car to good use and make extra money can be a game changer for many people. However, because so many people are participating in these programs, the idea that you can get involved and make money with no catch tends to be really prevalent. What few people realize is that there is a catch - your insurance. Recently, I was exploring a few different forums I’m a member of. One of them was a forum for RVers and other full-time travelers. A man on the forum was complaining because his insurance had recently dropped him after finding out that he was renting out his RV.
So many people on the forum had chimed in about their similar experiences, and others were equally outraged that this man’s insurance had dropped him. What few of them realized was that he did, technically, act outside of his insurance coverage. When we use our personal property, whether it’s a house, an RV, or a car, for profit, we’re no longer using it solely for “personal” use. Instead, insurance companies view this use as “commercial” - which acts outside of your agreement. This mistake has cost countless people a lot of money once they realize they aren’t covered when they truly need it, myself included.
A while back I wrote a blog post about my experience driving with Lyft, and how it ultimately cost me over $2,000. To make a long story short, I was unpleasantly surprised to find out that fixing an expensive problem with the used Mazda I had purchased wasn’t covered by the company’s extended warranty because I was using my car for commercial purposes. I was completely surprised, and a bit confused. I had only been a Lyft driver and food delivery person for a few weeks, tops. The issue I was looking to fix on the Mazda had been a long time coming, but the agent had found the Lyft stickers in my car. That was all it took. The $2,400 cost to repair the vehicle was solely my responsibility, which was especially frustrating as I had just left my full-time job the month before to focus on launching my financial planning practice. Not exactly great timing.
After asking around among some of my friends who I knew also drove for Lyft or Uber, I started to hear similar stories. One friend’s insurance company dropped him completely because they found out he was using his vehicle to participate in rideshare programs. I continued to hear stories like mine, including when I stumbled across the post in the RVers forum. I quickly realized that, while many people have the best intentions when it comes to participating in these income-earning activities, they’re completely unaware of how to insure themselves properly to avoid a huge financial hit.
If You’re Renting Out Your Living Space
Programs like Airbnb and VRBO have made it easier than ever to rent out your living space. Whether you own a beach house, have built a tiny house on your property, or are renting out a room in your full-time living space, you can officially rent it out using these services. This can be a fantastic way to make extra money, but being responsible for your guests’ physical wellbeing while they stay on your property can get you in hot water with your insurance company.
Although companies like Airbnb often offer a homeowner protection insurance program, they sometimes aren’t enough. These policies from each company protect homeowner’s for the cost of damages to their property, but there are often a range of exclusions and limitations that apply. Additionally, insurance through the company you’re using to rent your home often doesn’t cover the expenses should a guest injure themselves while on your property.
Typically, we’d view this type of claim as being covered under our traditional homeowner’s or liability insurance. However, many personal policies specifically exclude commercial use of the property. This is true for both full-time homes and other living spaces like RV’s.
Remember, even if Airbnb’s insurance covers a claim, your personal homeowner’s policy may still find out and drop your coverage!
As a result, it can be helpful to get proactive with your insurance company. Contacting them about your plans to rent, and seeing what your policy covers or if you need additional coverage, is likely in your best interest. For example, if you only plan to rent your property sporadically, traditional homeowner’s insurance may offer enough coverage. However, if you plan to rent your space close to full-time, you may need to upgrade to a landlord’s policy to protect your financial interests. A landlord’s policy often will offer liability and property coverage, but doesn’t usually cover the property of your tenant’s. It can also cost several hundred dollars more each year than traditional homeowner’s insurance.
Remember, the same rules apply if you plan to rent out your RV. You may have your RV insurance drop you if they find out you're using your RV for commercial purposes - even if it's just renting it out for a particularly busy holiday week every summer. Any time you’re using your RV for commercial purposes, your insurance may have the right to drop you - even if your rental site (like Airbnb) covers you with some insurance of their own.
If You’re Participating in a Rideshare Program
As a rideshare participant, you have a few options:
Purchasing commercial insurance for your vehicle.
Purchasing a rideshare insurance supplement to your personal auto insurance.
Of course, neither of these options is perfect. Commercial insurance can run between $3,000-$5,000/year, which is often more than a driver can expect to make annually. This is especially true if, like me, you’re only planning on driving alongside full time work or running your own business. If income from a rideshare program is intended to be supplementary, $3,000-5,000 likely makes it an illogical option for your “side hustle”.
Rideshare insurance, on the other hand, is a much more feasible option for drivers. Many major insurance carriers now option this supplemental insurance. Typically, it runs between $100-200/month, and it covers drivers during between-trip accidents. Many insurance companies offer this supplemental coverage alongside a traditional auto insurance plan - so you may need to be prepared to switch carriers if you’re looking to gain supplemental rideshare coverage. That being said, as the popularity of rideshare programs continues to grow, more and more auto insurance companies are offering some form of protection to rideshare drivers.
However, if you fail to enroll in supplemental rideshare coverage or commercial insurance, you’re putting yourself at serious financial risk. If your insurance company finds out that you’re using your vehicle for commercial use because someone files a claim or otherwise, they often reserve the right to cancel your policy. Driving without insurance is illegal, and getting into an auto accident without insurance could be expensive enough to either drain your savings or drive you into debt - neither of which are good.
These days, companies like Uber and Lyft often have some form of insurance protection, but it typically favors the passengers who ride with their company, not the drivers. As a result, you could still be in deep financial trouble if you get in an accident without the correct insurance coverage.
Weigh the Financial Pros and Cons
Although some of this insurance information may scare you away from renting out your home, or using your vehicle in a rideshare program - it shouldn’t. Making the assumption that these additional streams of income are going to be too costly is rash. Instead, you should take a step back, and look at your unique situation. Call your insurance providers to see what additional coverage options they offer, and what you can expect to pay.
Then, weigh those costs against what you can feasibly expect to make during this new venture. Be honest with yourself. If you only plan to deliver food for Lyft a few hours a month, you probably won’t make all that much, and you definitely won’t make enough to cancel out the additional costs of insurance. However, if you’re thinking you want to rent out a living space you own close to full-time, you very well could make enough to cover any additional insurance you’d need to cover your new “commercial use” property.
The key in these situations is to ensure that you’re protected, and that your side hustle isn’t losing you money. Have questions? Contact me today! I’d love to help walk you through the pros and cons of the different options you’re considering, and see how they fit into your overall financial goals.