Are your clients’ short-term rental properties properly insured?

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With COVID-19 safety protocols all but eliminated in Canada, many people are traveling and need a place to stay. As an alternative to hotels, some are taking up short-term rental spaces through services like Airbnb, VRBO, and other online platforms.

Now that rising interest rates are pushing up mortgage payments, more homeowners are likely to consider becoming short-term renters to earn extra cash. Which means it’s time for brokers to check with customers what this means for their insurance.

This means that insurers consider owners welcoming guests as a commercial enterprise. Standard landlord policies do not cover commercial activities, so these rentals require commercial insurance policies.

Insurance companies have started offering coverage for short-term rentals through commercial tenant or homeowner policies, but your customers must clearly show that they are occasional or short-term renters.

And brokers must explain to clients how the policy indicates the type of risk underwritten and how it is priced differently. Before a landlord becomes a host, help them determine if doing so would violate the terms of their existing homeowners insurance.

Owners must notify insurers of any change 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 customers should never assume that their current coverage will suffice.

If customers balk, show them the property rental service’s policy statement. For example, VBRO states: “Vacation rentals are different. They generally have three uses throughout the year: rental guest stays, owner vacations, and vacancy periods. You need insurance solutions that can cover all three.

Some short-term rental hosts may assume they are covered by the rental site. Here’s why it’s dangerous.

Glenn (we’ll leave out his last name) rented on an online site and went to check out his rental property in Toronto and found the kitchen counter badly burned. He did not live in the rental property.

Although Glenn acted as both host and landlord, his mortgage and insurance did not allow the property to be used as a rental.

He contacted the short-term rental company, who told him to speak with the guests to try to get them to admit liability and compensate him. They did not cooperate and he chose not to seek compensation through the rental company for fear that his mortgage company or insurer would find out.

Still, Glenn considers himself lucky. He had not told his insurer that he did not live at the property or that he was using a website to help rent it. Between his financial stress and the possibility of finding tenants quickly, Glenn took the risk that things would work out.

He now realizes how bad things could have gone if the house had burned down or someone had been hurt. He has now moved into his old rental building.

While offering short-term rentals can be lucrative, not having the right insurance can mean losses won’t be covered. That’s why brokers need to talk to customers about the differences between standard homeowners insurance coverage and short-term rental coverage.

George Longo is President and CEO of Excess Underwriting, a Toronto AG. This article is excerpted from an article that appeared in the November issue of Canadian underwriter. Featured image by iStock.com/asbe

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