Renting out a cottage to others? Here’s how much it may cost to insure it
Cottage season. Whether your property is in Muskoka, the Laurentians, the Sunshine Coast in BC or Bras D’or Lake in beautiful Nova Scotia, summer means it’s prime cottage time. If you are like many cottagers today, you may want to rent your vacation property or cottage to others to help offset the cost of your summertime fun. Insurance, if it is not already, should be right at the front of your decision-making process.
It’s important for you to understand that typical homeowners policies do not fully cover your property when you rent it out. This is because a cottage rental is considered a “commercial use” of the property you own.
So if you decide to rent out your cottage to others, it is important to get the specific risks associated with having a rental property covered. Thankfully, our commercial insurance experts across Canada know the marketplace and can help you find the best coverage for your cottage rental property.
Insuring a rental cottage in Canada
Amongst other property details, insurance companies in Canada want to know where your rental cottage is located and how it is being used. Furthermore, the Insurance Bureau of Canada notes,
“Most insurance companies will consider insuring your cottage only if they insure your primary residence. A cottage can be listed on your home insurance as a secondary or seasonal location. You can also have property insurance as a separate, stand-alone policy.”1
You should also be aware that more likely than not, your cottage property insurance coverage will be a named perils policy. Unlike a comprehensive home insurance policy that’s designed to cover a building as well as its contents, a named perils policy is fundamentally different.
“With named perils, you have insurance coverage for specific risks such as fire, explosion or smoke damage. Coverage for certain risks, such as water damage or vandalism, may be more difficult or expensive to arrange, due to part-time occupancy. For example, if a water pipe bursts or if vandals break in while your cottage is vacant, the damage is likely to be more severe because it takes longer for damage to be discovered.”2
You also need to be thinking about your cottage rental in terms of liability for other rental aspects, such as use of your boats or other watercraft that may be included with your property for rental use.
Do I have to have my home insurance with the provider in order to get cottage insurance?
As noted, many insurance providers will require customers to have their home insurance policy with them in order to insure recreational properties. Some insurance providers can include your cottage insurance as a subsidiary of your home insurance, but not if it is being rented out to others. A rental cottage must carry its own insurance that reflects this separate commercial use. That’s because this type of use carries specific risks that require their own coverage under a separate insurance policy.
Rental Cottage Insurance includes many aspects of your primary home insurance, including property and contents insurance and liability coverage. It is, however, specific to the liability of rental use.
What will an insurance broker want to know when I am getting cottage insurance?
Your Rental Cottage Insurance broker will want to know where your cottage is located, first and foremost, to determine proximity to emergency services. Your broker will inquire about how close you are to a fire hydrant and to a fire hall. How the firehall is run could also impact your insurance quote, for example, if the fire station is volunteer or staffed. They will also ask about the number of smoke detectors in your rental cottage.
Your broker will inquire about occupancy, so how many weeks your property will be rented and how much time you as the owner plan to occupy it. Added to this, your insurance broker will ask if you are checking on the property regularly and how often. They will also want to know how you solicit renters and what sort of vetting process you have in place.
Your Cottage Insurance broker will also be interested to know whether you are renting out any kind of watercraft or other recreational equipment with your cottage. You can include rental watercraft liability coverage in your rental cottage insurance, but this may need to be handled separately, and will likely increase your premium cost. In addition to details about your rental cottage, your insurance broker will ask about the physical building (and any outbuildings), its age, square footage and construction type, as well as the age and type of the roof, heating and plumbing systems, and approximate value of the contents.
You may also wish to insure the rental income you receive from your Rental Cottage, and your broker will also need to know this amount.
6 factors that contribute to the cost of rental cottage insurance
As much as potential income from renting your cottage is important, so are the costs associated with insuring it. Here are some factors that insurance companies look at when they determine the cost of short-term rental insurance in Canada.
Where your cottage rental is located. In addition to its geographic location, insurance companies want to know the distance your cottage is from fire protection services. Whether fire services are managed by the local municipality or volunteers is also something you’ll be asked about. Across Canada, fire, flood and earthquake rating models differ and, as such, add up to different costs.
Who you rent your cottage to. Do you typically rent your vacation property to family members or friends? Do you use an online service such as Airbnb or Vrbo to facilitate your cottage rentals? The people and/or groups that you rent your property to will have an impact on the cost of your insurance.
What’s your rental income? If you are not aware that monthly rental income can be insured, you should be. Insuring your cottage rental income is something that we can help you with.
What will it cost to replace your cottage? In the event that your rental property succumbs to fire or flood or is catastrophically damaged by a tornado, the cost to rebuild is important to know. Insurance companies will factor in the replacement cost of your cottage when calculating the price of your policy.
Your specific liability limit. Generally, the higher the liability limit is, the more expensive the insurance coverage will be.
Claims. Any and all historic claims. For instance, past property or liability claims within the past five years will impact the cost of insurance coverage.
What Cottage Insurance Discounts are Available?
Is it possible to receive any discounts for cottage insurance? You will pay less for your cottage or recreational property insurance if it is occupied as opposed to left vacant even for short periods. This means that someone will be regularly on-site in case anything goes wrong. You will also pay less for your recreational property insurance if you are not renting it out to third parties.
For Rental Cottage Insurance, you could see some discounts if you seek insurance from your home insurance provider. While the liability associated with your Rental Cottage is higher than a personal use recreational property, you can get a quote for the coverage that best aligned with your use from one of our brokers. Talk to an ALIGNED commercial broker today for a quote for Rental Cottage Insurance.
Some common cottage rental property risks
Additional income from a cottage rental property is great. However, it’s important to remember that there are many risks associated with renting out your cottage.
Cottage Life magazine recently identified some of key rental risks for its readers. Here are some practical tips for cottage landlords:
Don’t skimp on communication. The worst problems arise from breakdowns in communication. Provide instructions on use of appliances, boat safety, respect for wildlife, pet conduct, clean up, and garbage disposal. A friendly user’s manual may help guests enjoy a hassle-free stay while protecting your property. Take particular care about informing them what not to flush into a septic tank, which may be unfamiliar to city residents.
Don’t allow renters to use your motorized vehicles. This applies to both watercraft and ATVs. If renters use them, it increases safety and liability concerns. If they want a motorboat, they should rent one separately. A marina can provide the appropriate training course, boat license, and insurance. Make sure boaters are aware of rocks or other dangers on the lake.”3
Keep reading: 3 Cottage Life: 4 mistakes to avoid when renting out your cottage
What to know about unoccupied property when you rent your cottage
If you decide to rent your cottage using Airbnb, Vrbo or another online service, chances are good that it won’t be 100% occupied at all times. And when a cottage property isn’t occupied, the potential for risk goes up substantially. In fact, a vacancy of as few as four days can put your property at significant risk.
When people aren’t around, things that go wrong may not be identified and corrected in a timely manner.
Chances are good that even if you have commercial property insurance for your rental cottage, your policy may specifically exclude coverage during a vacancy. Thankfully, there’s a solution for times when your rental cottage is vacant for extended periods.
Vacant property insurance can help you mitigate the many risks your unoccupied cottage may face.
It is also important to note that due to increased risks, you can expect a typical vacant property policy to be one and a half to three times the cost of regular property insurance coverage.
Thankfully, vacant property insurance can protect against liabilities in the event someone is injured on your cottage property and sues for damages.
Find the Right Cottage Rent Insurance from ALIGNED
ALIGNED works with Canada’s top insurance companies to provide custom insurance packages at affordable prices. Click Here To Get A Quote or contact one of our business insurance experts for information or with any questions you may have.
Sources: 1,2 IBC.ca: Cottage Coverage; 3 Cottage Life: 4 mistakes to avoid when renting out your cottage
