Got clients considering becoming short-term rental hosts?

In Canada and abroad, many Covid-19 safety protocols are being reduced or eliminated. People will be travelling more, and they’ll need places to stay. In addition to hotels, many of those places will be accessed through peer-to-peer (P2P) services such as Airbnb, VRBO and other online platforms. Whether it’s to rent a room, condo, apartment, house or cottage, short-term rental spaces seem primed to increase.

It may be a good time to check in on clients who may be thinking about becoming short-term rental hosts. Insurance coverages for such rentals has evolved in Canada, and they may provide more of what a host needs to be protected.

Extra incentive to rent space

For most people, earning extra income was always the primary incentive to host a short-term rental. But that incentive may be keener than ever. The fallout from the pandemic has had huge societal impacts — not least on many people’s finances. Adding to financial stress is inflation not seen in decades in Canada. Statistics Canada recently reported that “Canadian inflation surpassed 5% for the first time since September 1991, rising 5.1% on a year-over-year basis….” And if that weren’t enough, “Shelter costs rose 6.2% year over year in January 2022, the fastest pace since February 1990.” If one’s mortgage is up for renewal with the interest rate possibly rising, having a bit more income would come in handy.

Get the right insurance

The vacation property rental service VRBO makes clear that clients considering using their services to rent vacation property should get insurance. “Vacation rentals are different. They typically have three uses throughout the year – rental guest stays, owner’s vacations, and periods of being unoccupied. You need insurance solutions that that can cover all three.

Still, people choosing to become a short-term rental host may think they have all the insurance coverage they need through their current home insurer. It’s critical that before a property owner chooses to become a host that they consider if doing so would violate the terms of their existing home insurance policy. Your standard home insurance or condo policy will not provide coverage to you if you are renting out your home.  Insurers must be advised of the change in use and will likely require changes to your existing policy.  Some home insurers will not insure short-term rentals. 

Don’t assume you’re covered

Those who wish to become hosts should speak with a broker about what coverage their existing policy offers.  A broker can help them determine the coverage that would best suit the short-term rentals they wish to do and ensure that their current insurer will continue to cover the property and or find a market that will

It could have been worse

When Glenn (who wishes to remain anonymous) dropped by to check on his rental property in Toronto one summer day a few years ago, he found the laminated kitchen countertop had been badly burned. At the time, Glenn was living elsewhere and had found his renters quickly and easily through a popular P2P site.

Unfortunately, of the three individual renters — one long-term (for months), and two short-term (a week or less) — no one would take responsibility for the damage.

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

In any event, Glenn contacted the short-term rental P2P company his property was listed with for help. He was advised to talk to the guests. To mediate, to try and get the guests to admit responsibility and to compensate him. No one would cooperate. He chose not to pursue getting compensation through the P2P, as he was fearful that either his mortgage company or insurer would find out.

Interestingly, unlike an insurance company which usually only has the property owner as the client, the P2P has both the property owner/host and the guest as clients. And although the P2P will eventually get involved upon a host’s following the correct damage claim protocols, hosts may be advised, as Glenn was, to first resolve the issue themselves.

Still, Glenn considers himself lucky. He hadn’t informed his insurer that he wasn’t living at the property nor that he was using a P2P to help rent it. Between his financial stress and the opportunity to find renters quickly through the P2P, Glenn took a chance that things would work out. Upon reflection, however, he realizes how bad things may have gotten if the house had burned down or if someone had been killed. He now occupies his former rental property.

Is it worth it?

Arriving at the intersection of financial need and rental property opportunity may cause many more people to consider or reconsider offering short-term rentals. It can be easy and lucrative to do so. But without the right insurance, it may also mean unexpected losses that are not covered by insurance.

Talk to your broker about which insurance solutions might be right when you are looking for your personal home coverage vs. short-term rental coverage for your home.