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, especially 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, 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 home 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is that the moment you start utilising your home as a rental property, your risk profile changes and your policy is no longer valid under the terms that were initially agreed on.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 contents 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 responsible for injury suffered on your 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, which may also be the case for other professional letting agent platforms.
Airbnb offers Host Guarantee and Host Protection Insurance. Host Guarantee Insurance is designed to protect hosts in the instance of property damage (up to R15 million) to their own possessions, unit or home by a guest staying in the space.
While the Host Guarantee does offer the host some cover, it does not replace your homeowner’s or renter’s insurance policy.
For example: the Host Guarantee doesn’t cover cash and securities, collectibles, rare artwork, jewellery, pets or personal liability, which is why Airbnb recommends that hosts secure or remove valuables when renting out properties. It also doesn’t cover loss or damage to property due to wear and tear.
The Host Protection Insurance is designed to cover hosts in the event of third-party claims for bodily injury or property damage. This is available to hosts regardless of their other insurance arrangements but will only act as primary insurance cover for incidents related to an Airbnb stay.
Sounds fair, but the claims process can get very complicated, because it’s really difficult to contact specific people responsible for this portfolio through Airbnb.
Also important to consider, is that if you’re renting out part of your home on a regular basis in order to generate income, it is general insurance practice in South Africa that your insurance company may view that as a business activity, which is typically not covered by a homeowner’s policy.
Property owners would instead, need to purchase a commercial insurance policy to ensure they are covered against damages.
If you’re planning on renting out your home this holiday season, we urge you to consult with us about all the terms and conditions of your insurance policy, and to make sure 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 help provide real peace of mind while you’re 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.