This is a guest post by Phil Schofield of Schofields Insurance – a UK specialist in holiday letting insurance.
Your vacation rental is a valuable asset and I am sure you have spent a lot of time on making the property perfect for your guests, and that you want to keep it that way. Letting your cottage to strangers has associated risks. Some incidents are trivial and considered ‘par for the course’ when renting, others can have significant consequences.
When things do go wrong it’s essential your insurance is protecting you against losses and damage, so it’s imperative that you are adequately protected.
Make sure you’re covered
The purpose of this article is to familiarise you with the types of risks and insurance you should consider when renting your property. We will assume your property is insured against major perils (fire, flood, storms etc.) and that you know the difference between buildings (the structure/fixtures and fittings) and contents (items you would take with you if you moved) insurance. We will focus on the extra insurance required when renting out your vacation home.
Protecting against damage
Damage, whether accidental or malicious, is one of the top claims insurers face. It is inevitable that with the constant influx of guest at your cottage, damage will happen. Broken furniture, jammed DVDs, spillages, burns… the list is endless.
Taking and deducting from a security deposit is one way to compensate for incidents when damage by guests can be considered negligent, but for significant damage, your insurance should protect you.
Also, check you are insured against the rare but devastating effects of destructive guests and malicious damage – parties and domestics fuelled by alcohol do happen and the resulting damage can be expensive to repair.
Having a pet-friendly rental can attract niche travelers who like to travel with their pets. However, pets left in unfamiliar surroundings can soil and chew furniture; ensure your insurance covers such damage.
Public liability insurance is often one of the most undervalued aspects of a rental policy, until of course it’s needed. If a guest injures themselves at your cottage, as the property owner they could hold you liable for the personal injury. This insurance will cover any subsequent damages and legal fees in defending liability claims.
If you are providing extras at your rental – canoes, quad bikes, bicycles, a swimming pool, hot tub, trampoline etc. check if your liability insurance extends to cover these. If it doesn’t, then you may wish to reconsider providing items that could expose you to personal injury claims.
How much liability insurance do you need? – 3 to 5 million is advised. You letting agent may require a minimum coverage so check with them.
Loss of rent
A burst pipe, flooding or fire can render your property uninhabitable for long periods whilst repairs take place. What would happen to your bookings over this period? Refunding guests out of your own pocket can have severe financial consequences so ‘Loss of rent’ insurance should cover this cost. However, note that cover only usually applies to pre-booked rentals, not projected rentals.
Likewise, if an insured event makes your rental inhabitable whilst guests are staying, a comprehensive rental insurance policy should cover the expense of finding them alternative accommodation.
Theft and security
It is likely that your insurer will require certain security measures to be in force when your property is both unoccupied and occupied. These vary between insurers but typically include specific door and window locks, shutters and alarms. Failure to meet the security terms of the insurance
invalidate theft cover – check you have adequate protection.
Are you covered for theft by ‘non-forced’ entry? If for example, a guest left a window open or didn’t lock the door on departure and you were subsequently robbed – would you be covered?
Although incidents of theft by tenants are rare, if a booking gave false details with intent of clearing out your property of its contents, you will want your rental insurance to also cover theft by tenants.
Is your cottage located in an area that’s prone to flooding, subsidence, bush fires or earthquakes? If so, then you will need to choose a policy that offers the flexibility to covers such risks.
Know what support you’ll be given if something does go wrong and you need to claim? Will you deal directly with the broker/agent who sold you the policy and knows the policy in depth, or are claims outsourced? How quickly will claims be dealt with? What happens if you are unhappy – is there an ombudsman or equivalent where you can complain?
Everybody likes a deal, however, be careful when choosing insurance based on the lowest price if it is at the expense of being inadequately insured. Opting for cheaper lower coverage is a false economy if the costs of being uninsured far outweigh any small premium savings.
Instead, choose a comprehensive policy but look for ways you can reduce the premium – e.g. increasing your security or opting for a higher excess.
– What would happen if a guest refused to leave – what are your eviction rights? Will your insurance assist?
– Are your insurance terms altered when your cottage is unoccupied for long periods?
– Don’t misrepresent something that is material when obtaining insurance as this can void your insurance contract
– Ensure your insurance values are accurate, don’t under or over-insure
– Make sure your property is kept in a good state of repair as insurance is not a maintenance contract and won’t cover general wear and tear
Hopefully this advice will make you evaluate your current insurance coverage to ensure you are protected against common risks when renting out your vacation rental. Seek insurance recommendations from other rental owners in your area who have successfully claimed, but always check the terms of the policy for shortfalls in cover.
Philip Schofield is a rental owner and advisor at Schofields Insurance who specialise in self catering insurance (for UK residents). You can also follow him on twitter @schofields where he shares holiday letting advice.