Rent 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.
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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.
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 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.
Questions about cottage rental insurance? Contact an ALIGNED Insurance advocate now!
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.Keep reading: 3 Cottage Life: 4 mistakes to avoid when renting out your cottage
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
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.
To learn more about managing the risks of a vacant property and what coverages you can expect with vacant property insurance, contact an ALIGNED Advocate.
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Our experienced commercial insurance brokers are here to help you to determine what coverage will best align with your Canadian cottage rental.
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