Renting out your home or a secondary property can be a terrific source of extra income, but the extra cash flow is not without 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 all 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 there is no payment. It is a furnished living space available for short periods of time. Short-term rentals are also commonly known as vacation rentals, and are considered an alternative to a hotel.
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 time period will be less than 28 consecutive days, as well. 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 on a quarterly basis, within 30 days of the end of the quarter. Lastly, if you are planning on renting out your property on a regular basis, it’s a good idea to talk to your isure broker first.
What is Short Term Rental Insurance?
Short-term rental or home-share insurance is insurance for landlords or homeowners who rent out their primary home or vacation property for a short period of time, usually up to six months. The Insurance Bureau of Canada advises before renting out your primary or secondary residence, that you contact your isure broker to ensure your policy provides adequate coverage and no exclusions apply. Insurers treat owner-occupied homes differently than 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.
FYI: Stating that your home will be your primary residence, but you instead intend on using 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 on the hook 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 on the grounds that 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 higher risk, and simply 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 isure-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 how much coverage you want, where your property is located, the items in the space and all the other things that are factored into a home insurance policy. Keep that in mind when comparing costs. What you may not realize is that short term rental insurance covers more than just theft and damages. 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 inhabitable
- 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 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 of time. 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 best to purchase a business policy. A hotel or bed-and-breakfast policy may be more expensive, but it provides you the most complete coverage. If you want to rent your home for a longer period, consider landlord insurance. This insurance provides specific coverage for long-term rentals, but won’t cover business activity on the property, including short-term rentals.
3. Don’t forget about liability coverage!
While most homeowner’s policies offer personal liability coverage, it doesn’t usually 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 for “qualifying incidents” only.
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.
For more information on becoming a short-term rental operator, click here.
If you’re looking for a way to supplement your income, renting your home to travellers can be a way to earn extra cash. But it also has the potential to turn into a nightmare if you don’t have the right insurance protection. Contact your isure broker today to make sure you’re covered before listing it.
