Holiday homeowners keen to capitalise on rentals from their properties over the holiday season should insure adequately against damage and liability. So says Mandy Barrett of insurance brokers AON South Africa.
“Owners are naturally keen to generate cash flow from their holiday homes which stand idle for much of the year and absorb money in upkeep, security and bond repayments. So while they are looking forward to a bonanza from renting out their coastal or mountain property over the festive season they could face losses that severely dent or exceed any profits.”
She says this risk stems from the fact that the insured risk of your property and its contents changes if you open it to visitors who may not show due care to avoid damages or loss.
“In fact, personal lines policies generally exclude any liability arising out of the letting and /or hiring out of any immovable or movable property for a fee, reward or any other consideration. So best you check the fine print of your policy. As for contents, insurers will generally restrict theft cover to forcible and violent entry/exit only, so there would be no theft cover, if there were no evidence of this having taken place. And, what’s more, if there were such an incident, you may find your premium or excess is increased."
Typically, Barrett says owners would insist on a deposit from the tenants but this may be woefully insufficient to cover any damages and the chances of recovering the costs of those damages are extremely slim and difficult to prove. “Your best option is to declare the changed risk to your insurance broker, to accurately scope cover for your exposure and so avoid possible later repudiation of any claims by the insurer."
“Typically that will lead to a re-assessment of the risk and an adjustment of premiums. Alternatively you could exclude certain risks from your cover, meaning you accept the risk yourself and will not have a claim for those risks in the event of a loss. You could also accept a higher ‘excess’ (the initial portion of a claim that you would have to pay) or you could ‘cap’ the payout on specified risks in order to moderate the premiums. The basic idea is to ensure that you are properly covered, or your risk is reduced and any claims you may have are not repudiated. Whatever the case, if you are considering renting out your home over the next few months, it’s advisable to consult with your broker." says Barret.