Renting out your home or a secondary property can be a terrific source of extra income, but the additional cash flow comes with its risks. With each rental turnover, you face the potential of suffering accidental damage. So, how do you protect your short-term rental property? Here’s everything you need to know about short-term rental insurance.
What is a Short-Term Rental?
A short-term rental is an entire dwelling unit or part of a dwelling unit rented out for less than 28 consecutive days in exchange for payment. This includes bed and breakfasts (B&Bs) but excludes hotels and motels. It also excludes other accommodations where no payment is made. It is a furnished living space available for short-term stays. Short-term rentals, also commonly known as vacation rentals, are considered an alternative to hotels.
How Do I Become a Short-Term Rental Operator?
If you are considering renting out a portion of your home or cottage, you are considered a short-term rental operator. The rental period will also be less than 28 consecutive days. First, you would need to register with the city. Next, you are required to collect and remit a four percent Municipal Accommodation Tax (MAT) on all rentals. The payment is due quarterly, within 30 days of the end of each quarter. Lastly, if you plan to rent out your property regularly, it’s a good idea to consult with your isure broker first.
What is Short Term Rental Insurance?
Short-term rental or home-share insurance is a type of insurance designed for landlords or homeowners who rent out their primary residence or vacation property for a short period, typically up to six months. The Insurance Bureau of Canada advises that before renting out your primary or secondary residence, you should contact your insurance broker to ensure your policy provides adequate coverage and no exclusions apply. Insurers treat owner-occupied homes differently from homes rented to third parties. Changes in occupancy can affect your coverage. This is because your risk has changed, and you have dramatically changed your liability. You are now no longer eligible for coverage under your existing home insurance policy. To make sure you don’t unexpectedly find yourself without coverage, be sure to check with your insurer before you put any entrepreneurial plans into action.
For your information: Stating that your home will be your primary residence, but you intend to use it as a rental property, can result in the cancellation of your home insurance.
Your Home Insurance Coverage
In most cases, traditional homeowner’s insurance will not cover damage or injury resulting from rental activity. That means you could be liable for any property damage caused by a careless guest and all liability claims resulting from a short-term stay. If you do not inform your insurer that you’re hosting short-term rentals, your policy is most likely already void. If you need to make a claim, your provider can deny it because you misrepresented or failed to disclose the occupancy of the home—a serious breach of the conditions of any home insurance policy.
Rental Insurance Coverage
Even once you’ve informed your provider, they still must agree to cover the rental. Some insurance companies consider short-term rentals to be higher risk and therefore won’t insure them. In that case, you’ll need to find a home insurer that does. Other insurers treat short-term rentals as business operations, which some home insurance policies typically won’t cover. Some of our insurer-approved insurers that do offer coverage include Aviva and Wawanesa. Other insurers include:
- Aligned Insurance
- April
- BCAA
- Duuo
- Kase Insurance
- Netsurance
Short-Term Rental Insurance Coverage
Your premium for short-term rental insurance will depend on the amount of coverage you want, the location of your property, the items in the space, and other factors that are factored into a home insurance policy. Please keep this in mind when comparing costs. What you may not realize is that short-term rental insurance covers more than just theft and damage. It also includes:
- Intentional and unintentional damage by guests or tenants
- Theft by guests and tenants
- Legal liability
- Loss of income if the property becomes uninhabitable
- The cost of utilities in case of excessive usage
- Replacement costs for keys and to change the locks
Five Tips For Finding the Right Insurance Coverage for Your Rental
1. Understand Your Home Insurance Policy
Most homeowner and tenant policies won’t provide coverage for business activities conducted in your home. Therefore, short-term rentals are likely to be covered by your home insurance policy. Be sure to have your broker or agent go through your policy; some homeowner policies do cover short-term rentals if the activity is occasional and only for short periods. Also, some insurers may be willing to sell you an endorsement to cover short-term rentals.
2. Choose the Right Coverage For Your Needs
If you plan to make renting your home a regular thing, it’s best to purchase a business policy. A hotel or bed-and-breakfast policy may be more expensive, but it provides the most comprehensive coverage. If you plan to rent your home for an extended period, consider landlord insurance. This insurance provides specific coverage for long-term rentals but does not cover business activities on the property, including short-term rentals.
3. Don’t Forget About Liability Coverage!
While most homeowners’ policies offer personal liability coverage, it typically does not extend to business activities. That means if a renter trips on a rug or falls down your steps, you can be liable for medical expenses and related legal fees. Business liability insurance can be purchased separately or combined into one property and liability protection package.
4. Host Coverage Through Rental Websites
Several rental websites offer some level of host coverage, but they may not provide the insurance protection you need. It is designed to serve as backup liability protection, kicking in only after a host’s own insurance company denies a claim. If a host does not have other insurance, the protection can serve as primary insurance, but only for “qualifying incidents.”
5. Know If Coverage Is Required
Depending on where you live, short-term rental insurance might be more than peace of mind. It may be required by law! Some cities have similar short-term rental requirements and restrictions, so be sure to check with your local government before listing your home.
If you’re looking for a way to supplement your income, renting out your home to travelers can be a great way to earn extra cash. But it also has the potential to turn into a nightmare if you don’t have the proper insurance protection. Contact your isure broker today to make sure you’re covered before listing.
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