Are You Covered – Rental Insurance Explained
The moment you accept money for your vacation rental property you have made a business transaction and that is the way your insurance company sees it. Even if you are renting to friends or family, if any money has changed hands, you are at risk of having an insurance claim denied if the incident took place during, or as a result of their stay.
In general your regular home-owners insurance will not cover ‘business activities’ so before you plan your first rental, contact your insurance company. Some policies will have cover built in for short-term rentals but this is generally minimal so make sure you check thoroughly before you start.
Do I have to get commercial insurance?
At one time a commercial policy was the only way to get rental coverage but that is no longer the case. A broker who has good knowledge of the cottage rental business can create a custom policy to cover short-term rental and other risks.
If you have several properties and run them as a separate business, then a commercial policy my be a better option – once again a good broker can advise you.
Will my insurance cover damage?
Not all policies are created equal so although your policy should cover the major perils – damage by fire, weather incidents, flood etc, you may need extra insurance to make sure you are protected against other significant damage.
Even the best of guests can inadvertently cause accidental damage. This could be spills on carpets, burnt countertops or perhaps a broken picture window. However, you’ll probably have a high deductible to keep your premium down, so you might not want to claim for damage of less than $1000.
You will need to check the policy covers the aftermath of malicious or destructive damage as a result of overcrowding and partying. Your policy may require you to restrict occupancy and not rent to particular groups i.e. under 25’s. And…make sure you have a rental contract signed by both parties that agrees your Terms and Conditions of Rental as this can be referred to in any dispute.
What if a guest gets hurt and claims we were negligent?
Liability insurance covers the damage and legal fees you may face in the event of a lawsuit. If a guest is hurt at your property they could hold you liable for the personal injury.
Recommendations vary but you should have at least $2M in liability cover. Should a claim occur you would have to prove you had not been negligent in any way, so it is important to spend a good amount of time ensuring your buildings (and specifically decks and docks) meet provincial building code, and you have provided sufficient warning of potential dangers in the form of waivers or notices.
For example, a sign saying ‘Do not dive or jump’ together with an indication of water depth at the end of a dock, would show your due diligence in avoiding a potential accident.
Use a page in your Welcome Book to point out the potential dangers around the property with appropriate warnings. “Care should be taken when using the stone steps after periods of rain as they can be slippery” is better than not mentioning it at all and someone suing because they slipped on some fallen leaves on the steps.
Theft & Security
Your insurer will expect that you maintain security measures both when the property is occupied or unoccupied. This could be having alarms, window locks, shutters etc.
If you accept discounts for having security systems installed, you will need to make sure they are used, which can be a challenge with rental guests as you cannot monitor their diligence with arming an alarm system.
Things you would need to ask the insurer:
- Is there cover for non-forced entry if a guest left at the end of their stay and failed to lock the door, and you were subsequently robbed?
- Is there cover for theft by tenants? This is unlikely but if you were given false identity information by a guest intent on clearing out your property, you would want your insurance to cover the incident.
- Does leaving the property empty for lengthy periods of time affect the insurance?
- How often does it have to be checked when it is not occupied by yourself or guests?
- Is there ‘loss of rental’ cover for incidences where an insured event makes your property uninhabitable while repairs are taking place, and does this cover projected rentals as well as pre-booked reservations?
If a situation occurs and you have to make a claim on your insurance, and you have taken a damage deposit from a guest, you may use that to cover the deductible.
Some owners and agencies expect their guests to provide evidence of their home contents policy, as that will often cover damage to a third party property.
Getting insurance can be pricey but it is worth the cost for your peace of mind and confidence that your insurer will have your back in case of a liability claim.