Are your clients’ short-term rental properties properly insured?
With COVID-19 safety protocols all but eliminated in Canada, many people are travelling and need places to stay. As an alternative to hotels, some are taking short-term rental spaces through services like Airbnb, VRBO and other online platforms.
Now that rising interest rates are pushing up mortgage payments, it’s likely more homeowners will explore becoming short-term rental hosts to earn extra cash. Which means it’s time for brokers to check in with clients about what that means for their insurance.
It means insurers see homeowners taking in guests as a commercial venture. Standard homeowners’ policies don’t cover business activities, so these rentals require commercial insurance policies.
Insurance companies have started offering coverages for short-term rentals through commercial tenants or landlord policies, but your clients must clearly show they’re renting occasionally or on a short-term basis.
And brokers need to explain to clients how the policy states the type of risk being underwritten and how it’s priced differently. Before a property owner becomes a host, help them determine if that would violate the terms of their existing home insurance.
Owners must tell insurers about any changes in use, which will likely require changes to the existing policy. Most insurers will offer an endorsement covering occasional rental coverage to a policy for an additional premium to provide property damage and liability coverage while someone is renting.
But clients should never assume their existing coverage will suffice.
If clients balk, show them the property rental service’s policy statement. For example, VBRO’s states: “Vacation rentals are different. They typically have three uses throughout the year – rental guest stays, owner’s vacations, and periods of being unoccupied. You need insurance solutions that can cover all three.”
Some short-term rental hosts may assume they get coverage through the rental site. Here’s why that’s dangerous.
Glenn (we’ll leave out his last name) rented through an online site and dropped by to check on his Toronto rental property and found the kitchen countertop badly burned. He did not live at the rental property.
Although Glenn acted as both host and landlord, his mortgage and insurance didn’t allow the property’s use as a rental.
He contacted the short-term rental company, which told him to speak with the guests to try and get them to admit responsibility and compensate him. They wouldn’t cooperate and he chose not to pursue compensation through the rental company for fear his mortgage company or insurer would find out.
Despite everything, Glenn considers himself lucky. He hadn’t told his insurer he wasn’t living at the property or that he was using a website to help rent it. Between his financial stress and the opportunity to find renters quickly, Glenn took a chance that things would work out.
He now realizes how badly things could have gone if the house had burned down or if somebody had been hurt. He’s now moved into his former rental property.
While offering short-term rentals can be lucrative, not having the right insurance can mean losses go uncovered. Which is why brokers need to talk to clients the differences between standard home insurance coverage and short-term rental coverage.
George Longo is president and CEO of Excess Underwriting, a Toronto-based MGA. This article is excerpted from one that appeared in the November issue of Canadian Underwriter. Feature image by iStock.com/asbe
