Insurance 101: Short-term rentals come with risks
Thinking of making some extra cash by renting out your place?
You’re not alone. One only needs to visit increasingly popular online websites where there are thousands of homes, apartments, and spare rooms being offered for rent by owners.
But it’s not all easy money. Before you list your home or spare bedroom online, know that opening your home to short-term renters comes with risks beyond messy guests. 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.
Consider the case of a Calgary couple who rented out their home a few years ago through a website and returned to find their home destroyed by the nearly 100 people who attended a two-day party. The mess, at the time, was estimated to cost up to $75,000 to clean up.
The story is a cautionary tale to many who have considered renting out their primary or vacation home on a website.
The Insurance Bureau of Canada advises before renting out your primary or secondary residence, that you contact your insurance 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.
In addition, landlords and tenants have different rights and responsibilities.
Think about this: A major sporting or cultural event is coming to your city. You decide to rent your home to visitors for a few weeks and take a holiday. While you’re gone, a burglary occurs, and all your jewelry is stolen. Are you covered?
You need to remember your home insurance policy was designed specifically for you and sold with the expectation that you, the owner, would reside in the dwelling.
- Some policies may not allow you to rent your home to someone else, even for a short period.
- Before you rent your home or even a portion of it, talk to your insurance broker ahead of time to find out how the arrangement may affect your coverage.
5 important tips
Let’s say you’ve decided you are going to offer your property as a short-term rental. Here are some tips to help you find the right insurance coverage:
1) Understand the limits of your homeowner’s insurance.
Most homeowner and tenant policies don’t provide coverage for business activities conducted in the home. Renting all or a portion of your home to a paying guest is a business activity which means short-term rentals likely are not covered by your insurance. However, according to the Insurance Information Institute (III), 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, extending a traditional policy to cover short-term rentals.
2) Consider business insurance.
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 provides 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 could 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) Learn what's offered through the rental website.
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.
Whether you're looking to cover your bills or want to meet new people, 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 broker today to make sure you’re covered before listing it.
RELATED READING: The pros and cons of renting your home