If you are like many cottage owners today, you may want to rent your vacation property or cottage to others to help offset the cost of ownership. The type of insurance coverage you will need for the property is tied directly to how you intend on using it. Considerations like: What is the amount of time spent there? Year–round or sporadic use? Is it a rental property as well as a family retreat? It’s important for you to understand that homeowner’s policies do not fully cover your property when you rent it out. As you are gaining income for renting out the property, it is considered “commercial use” during this time and for this reason, insurers need to understand your rental property intentions. If you are considering getting the most out of your home away from home, consider all the below information about rental cottage insurance.
Do I have to insure my cottage with the same provider of my home insurance?
Many insurance providers will require you to have their home insurance policy with them in order to insure recreational properties. A rental cottage must carry its own insurance that reflects this separate commercial use. That’s because this type of use carries specific risks that require their own coverage under a separate insurance policy.
Rental cottage insurance covers many aspects of your primary home insurance, including property and contents insurance and liability coverage. It is, however, specific to the liability of rental use.
What will an insurance broker want to know when I am purchasing cottage insurance?
Your insurance broker will want to know specific details about the property, such as:
- Emergency services access: The distance the cottage is to a fire hall or hydrant will affect your rates, as well as the number of smoke detectors installed.
- Occupancy: The number of weeks the property will be rented out and how much time you intend to occupy it. According to the Insurance Bureau of Canada, “Coverage for certain risks, such as water damage or vandalism, may be more difficult or expensive to arrange, due to part-time occupancy.” If you are going to use the property and rent it out throughout the year, the issue of vacancy affecting your rates is lessened.
- Management: Your insurance broker will also want to know how often you check the property or if you will hire a property management company. They will also need to know what your vetting process is for prospective users.
- Add-Ons: It is important to notify your insurance company about whether you will be renting any watercraft or recreational equipment with the property. Watercraft liability insurance can be added to your rental insurance or handled separately.
- Building details: The condition of the physical building itself (and any outbuildings) will need to be detailed, including its age, square footage and construction type. You will also have to give information surrounding the age and type of the roof, heating and plumbing systems and the approximate value of the contents.
Do I need rental coverage?
Yes. While home-sharing companies, such as Airbnb, offer insurance, it would be secondary to your own insurance. Your insurer can deny your claim or drop you as a customer if you haven’t informed them that your cottage is being used as a rental property, which increases its risk exposure.
When speaking with your isure broker, ask about rental income coverage. If there is an insured loss (something that prevents you from renting) and you lose the rental and resulting income, this coverage will pay you the missing money. Some insurance companies include rental income replacement in a cottage insurance policy, while others may add this coverage to your cottage insurance as an endorsement
How many other rental properties are there in the area?
While this doesn’t necessarily give an indication on saturation levels, it will show how competitive the market is. You can do some preliminary research on this yourself using Airbnb, Vrbo Canada and Cottages in Canada. Your local store or realtor may have advertisements posted as well to get an idea of your potential competition for rental dollars.
Are watercraft and other RV’s covered under my rental insurance?
You should consider insuring recreational items, such as boats, ATVs, jet skis, snowmobiles, canoes and kayaks. Some items (like trailers and canoes) may be covered under your home insurance policy or cottage insurance policy. Others, like larger watercraft, require separate insurance policies.
It is not mandatory to be insured if you ride on private property. However, all it takes is one accident or crash to make your policy worthwhile. The upside, however, is that you may be able to get a discount on coverage for your vehicles if you bundle your policies with the same ATV insurance company.
FYI: Some insurance companies include rental watercraft liability coverage in a cottage insurance policy, so ask your isure broker for help while researching.
Do I need third party liability insurance for my rental property?
Yes. You will want to be sure that you and your cottage guests are covered by insurance when using your recreational items (boats, ATV’s, jet skis, canoes, kayaks). Some insurance brokers may recommend $1-2 million in liability coverage. When you consider the costs of legal fees and judgments for liability claims, it is a good idea to have coverage in place if you offer these rental extras.
Some rental owners suggest if renters want a motorboat during their stay, they should rent one separately. A nearby marina can provide the appropriate training courses, boat license and insurance coverage.
If my property is near open water, do I need to supply life jackets?
If your property is on or adjacent to a large body of water, insist that parents bring their own properly-fitted lifejackets for their children. As the owner of the property, if you supply children with life jackets, you are assuming liability for the fit. However, owners should provide at least two adult life jackets. Parents will remember safety gear for their children and not think about themselves.
What sort of instructions should I leave at the property?
According to OTIP.com, you should leave your rental guests a detailed guidebook that contains all the information they’ll need for a safe and enjoyable stay. Your resource guide should include:
- Instructions for how to safely operate appliances, like your wood stove or other heating units.
- A detailed list noting the location of all smoke detectors, carbon monoxide detectors, fire extinguishers, life jackets and other safety equipment.
- Information on secure garbage disposal and how to prevent unwanted visits from local wildlife.
- Guidelines for your septic system best practices, if applicable.
- Emergency contact numbers, including a number where you can be reached at all hours.
- Manufacturer’s manuals for all recreational equipment, if your rental agreement includes guest use.
- Instructions for operating the water tank and preventing frozen pipes in winter.
Are my outbuildings covered by my rental cottage insurance?
Some insurance packages include a limited amount of coverage for outbuildings (dock, garage or boathouse). This information is often covered under the Detached Private Structures portion of your policy. You can also look into endorsements available as an add-on for additional coverage to ensure you are adequately protected, such as damage due to things like ice build-up or overland water.
What is included in contents coverage?
Like home policies, some cottage property policies will automatically include the items inside your cottage (contents) up to a certain limit. This coverage applies to contents permanently kept at the cottage, like beds and other furniture. Anything you bring back and forth, such as clothing, will be covered by your primary home insurance policy. Creating and maintaining a home inventory of your contents will help to keep track of items left in the cottage. It will also serve as a checklist for you between rental stays each season. Updating this checklist yearly will help you to keep track of purchases made for the property and in light of these purchases, you may choose to rethink the amount of your coverage.
Who will look after the property?
Part of the allure of having a second home-away-from-home is the idea of it being a “getaway”. Most second-home owners are remote from their properties, so how you intend to maintain the property is a big consideration. It may not be reasonable for you to make the trip to check and clean the property between rental stays. One option is to look into a property management service as an option. Real estate agents in the area may have connections to full-service companies, cleaning services and/or caretaking-only options in your area.
How can I lower my rental cottage insurance premiums?
Similar to home ownership, regular safety measures, like installing fire alarms, security cameras, burglar alarms and backup generators, can lower your insurable risk when it comes to rental cottages and insurance.
To assist in lowering the damages to the property, consider the following:
- Keep your boat and other recreational vehicles off-limits from the renters. This way, you can avoid purchasing special vehicle insurance.
- Buy a first-aid kit that renters can use in case of minor injuries.
- If your property is next to a body of water, install lifebuoy rings to use in case of an emergency. They could reduce your liability in case of an accident with the renters.
- If you’re planning on renting out your cottage through a home-sharing company, check if they offer insurance that is less expensive compared to other cottage insurance.
- Combining (or bundling) your home, seasonal home, recreational vehicles or car insurance with the same insurance company can save you up to 10% with some insurers.
- Investigate whether or not you qualify for Claims-free, Loyalty and Mature-age discounts.
- Purchasing smart water devices, such as leak detectors and smart shutoff valves, will help to stop leaks before they destroy your property.
According to canadadocks.ca, people choose to rent their cottage for a variety of reasons. A shared family cottage becomes a source of supplemental income, and an investment now becomes a retirement property later. No matter the reason, the result is the same; a money-making opportunity that can provide long-term benefits. If you are thinking of maximizing your second home investment to benefit you in the long run, speak to an insurance broker at isure to help you get the most out of your property.