The festive season is a time to travel and many property owners often see this as a time to rent out their homes either in their private capacity or through a host of platforms such as AirBnB or Booking.com.
For homeowners living in luxury properties in sought after destinations like ours, holiday rentals tend to not only be profitable, but some may also find peace of mind in the idea that someone is looking after their home while they are away.
Holiday lets can generate extra income at the end of the year, but they also expose unwary homeowners to risks that could end up losing them a lot of money in damages.
It’s extremely important to be aware that renting out your residence on a short-term basis, could have severe implications on your insurance policy. It’s highly likely that any claims for damages incurred during this time, could be rejected by your insurer should you fail to follow the correct protocols.
That’s because standard homeowners’ insurance doesn’t cover the vast majority of incidents that may occur while your home is being rented to strangers. Most insurer’s point of view is that the moment you start utilising your home as a rental property, your risk profile changes and your policy is no longer valid under the terms that were initially agreed on. The risk of unforeseen incidents, including theft, property damage and property owners’ liability increases significantly.
Short-term letting generates extra revenue, which in the view of some insurers technically makes it a commercial venture. Consequently, a more complex insurance policy is required to cover the associated risks. But what are the key components of a comprehensive insurance product that covers rental risks?
The first item that should be considered, is home contents insurance. After renters have left, you may find items missing or damaged. Especially high value items like TVs and other electronics. Since the theft or damage was committed by someone you willingly allowed onto the property, your standard insurance policy may not cover you.
Similarly, thefts that occur as a result of guest negligence, for instance if they forget to lock doors or turn on alarms, also need to specifically be covered by your policy. This could lead to substantial losses if not managed effectively, as most insurers will not accept an excuse that paying guests did not set an alarm, as a valid excuse for non-compliance with an alarm warranty on your policy.
It’s also common practice for insurers to exclude malicious damage caused by paying guests, so it’s critically important to thoroughly vet guests or to use a professional letting agent when deciding to rent out your home.
Next, fire risks increase substantially during the holiday season, especially since guests are more prone to braai or light candles around the home. Again, if any fires are caused as a result of gross negligence on the part of the guests, you could find yourself uninsured.
Property owners’ liability should also be a major concern for any homeowner renting out their house. It’s vital to have the right level of liability cover in place should guests hold you legally liable for injury suffered on the property during their stay. Given that guests are often international travellers and/or high net worth individuals, this is possibly the largest risk exposure any property owner can face. Being held liable for hospital bills and damages can be financially devastating for the unprepared.
Fortunately, Airbnb does make provision for property owners’ liability insurance as part of their offering, this may also be the case for other professional letting agent platforms.
If you’re planning to rent your home out this holiday season, we urge you to consult with us about all the terms and conditions of your insurance policy, and to make sure that you understand the extent to which your property is covered.
Homeowners’ policies differ, which is why it’s always best to double check with us that you have sufficient cover in place, and to find out whether or not you can add on additional cover for the duration of the holiday. Not only will this help avoid unnecessary financial losses, it will also provide real peace of mind while you are away.
When you need insurance advice, call us – it’s what we’re here for …
* This article is provided for informational purposes only and should not be construed as legal or financial advice.