The festive season is synonymous with travel, and many property owners often see this time as an opportunity to rent out their homes for the holidays either in their private capacity or through a host of platforms such as AirBnB. For individuals living in luxury properties in sought after locations, holiday rentals tend to not only be relatively profitable, but some may also find peace of mind in the fact that there is someone to look after their home while they are away.
While this can provide a homeowner with an extra income at the end of the year, Christelle Colman, Managing Director of Elite Risk Acceptances, points out that this also exposes unwary homeowners to risks that could end up losing them much more money in damages. “It is extremely important for homeowners to be aware of the fact that renting out their residences on a short-term basis, could have severe implications on one’s insurance policy. It is in fact highly likely that any claims for damages incurred during this time, could be rejected by one’s insurer if protocols are not followed.”
Colman warns that standard homeowners’ insurance does not cover the vast majority of incidents that may occur while the home is being rented to strangers. “Though not all insurers follow the same protocols, in many cases the 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is that the moment you start utilising your home as a rental property, your risk profile changes and your policy is no longer valid under the terms that were initially agreed on. For you as a homeowner, the risk of unforeseen incidents, including theft, property damage and property owners’ liability also increases significantly.”
Short-term letting generates revenue for the homeowner, 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. With this in mind, Colman highlights the key components that need to form part of a comprehensive insurance product to cover rental risks.
“The first item that should be considered as part of the policy cover, is home contents insurance. After renters have left, the homeowner may find items missing or damaged. Especially for high value items such as TVs and other electronics, the financial loss suffered as a result could be extensive. Since the theft or damage was done by someone you willingly allowed onto the property, standard insurance may deny the claim.”
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 the 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 the policy,
“It is common practice for insurers to exclude malicious damage caused by paying guests, so the importance of thoroughly vetting guests when deciding to rent out your home cannot be emphasised enough. For this reason, using a professional letting agent is the best route to go,” warns Colman.
Next, fire risks increase substantially during the holiday season, especially since guests are much 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, the homeowners could find themselves uninsured if they did not take the necessary precautions.”
Lastly, property owners’ liability should be a major concern for any homeowner renting out their house. “It is vital to have the right level of liability cover in place should guests hold the property owner legally liable for injury suffered on the property during their stay. Given that often guests are international travellers and/or high net worth individuals, this is possibly the largest risk exposure any property owner will 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.”
With that said, Colman urges those who plan on renting their homes out this holiday season, whether it be to families or film production companies, to carefully read all of the terms and conditions of their insurance policy, and to make sure that they understand the extent to which their property is covered. It is always advisable to get all changes that may impact one’s risk profile on record and to obtain your insurers consent in writing confirming that cover is indeed in place.
“Homeowners’ policies differ, which is why it is always best to contact your broker or insurance provider to ensure that you have sufficient cover in place, and whether you can add on additional cover for the duration of the holiday. Not only will this help avoid unnecessary financial losses, but it will also provide real peace of mind while you are away,” concludes Colman.