It is very common for cottage owners to rent out their cottage for a portion of the summer. Renting your cottage can be financially rewarding however, when you rent your cottage you are exposing yourself to additional risks of loss or damage, and you are exposing yourself to potential expensive lawsuits. What if a renter was injured while staying at your cottage? What if the campfire got out of control and caught the boathouse on fire? Are you covered? Have you advised your insurance broker of your cottage rentals? Some insurance companies will not allow any rentals and other companies allow rentals with stipulations. If your insurance company does not allow rentals and you rent your property you may be at risk for having a claim denied, which could be very costly.
Let’s talk about a cottage insurance policy. There are 2 main sections of coverage, property & liability. The property section provides coverage for loss or damage to the structures and personal contents on the premises. There are two main claim payment options: Actual Cash Value and Replacement Cost. The difference between the two is that Actual Cash Value is the replacement cost minus the cost of depreciation. As there can be a significant difference in these dollar figures it is very important to know what type of claim settlement you have on your policy and what the limits of coverage are for your property. The liability section provides coverage in the event that a 3rd party is injured on the premises and makes a claim against you, as the property owner. If you receive a notice of claim the first step is to forward the notice to your insurance broker immediately, as these notices are time sensitive. The insurance company will assign an adjuster, provide the legal defense for you, and pay out up to the liability limit on your policy (typically $1-$2 Million) if you are found liable. However, if the insurance company was not informed of the rentals, they may deny coverage completely. This means you would have to hire a lawyer to defend the suit and you would be out of pocket for the legal expenses as well as any judgement awarded to the plaintiff.
Before you rent your cottage talk to your insurance broker. If your current company does not provide coverage for rentals your broker can look at moving your cottage policy to another company.
Here are some key questions that you should be asking your broker before you rent:
1/ Will my insurance policy respond if there is a loss while the cottage is rented?
2/ Is there enough property coverage if the cottage was a total loss?
3/ What valuation is used Actual Cash Value or, Replacement Cost?
4/ What is the liability limit? How much does it cost to increase the limit?
5/ Is there coverage if a renter uses the boat?
As a broker, my best advice is, “Talk to your broker, be honest, and don’t leave anything out.” It is very difficult to advise people if we don’t have all of the information. A key role of an insurance broker is to explain the coverages, exclusions, and conditions of the insurance policy.
Thank you to Lori McCormack and the brokers at AW Shier Insurance and Stan Darling Insurance for this article.
This entry was posted on July 21, 2017 by Jim and Iris
“Jim and Iris Gardiner were both amazing to deal with. A truly professional team. They shared a great deal of knowledge with us and really shed important light regarding potential Island Cottage ownership – all the pros and cons. Not only did they sell our existing cottage in 24 hours for much higher than our asking price they helped us find our new slice of paradise on Lake Muskoka in a very tight market. We are thrilled with our new cottage and love being on Eilean Gowan Island! We would highly recommend either Jim or Iris for any of your Real Estate needs!”J & D – Sold on Echo Lake and bought on Lake Muskoka
Mike Taylor was a great find for us. Mike was accessible and flexible with showings, visits, the house inspection and all of the steps involved in closing a sale. Following our closing Mike has continued to be a valuable source of information providing us with contacts for insurance, plumbing and electricians among other things.S & D – Muskoka River, Port Sydney
Jim did me a favor 20 years ago and I wanted to return the favor – I approached him and Iris at the cottage show and, even though I already had a real estate agent, he recommended a cottage property that I purchased and enjoyed for those 20 years. I therefore, tracked him down and had him be our agent in selling that property. Our priority was to find new owners that would be friendly and fit in well with the neighbors and Jim and Iris found the perfect couple Jim and Iris made the entire sale most enjoyable. The experience was so smooth and enjoyable that the sellers, the buyers and the real estate agents all got together for supper the following summer at our old cottage!K & L – Lake Muskoka
As first time cottage buyers but no strangers to purchasing property, we were fortunate to find Mike Taylor. We purchased through him in 2016 and would gladly again. Honest, great local knowledge and mindful of the nuances of financing, our experience with this agent was golden. Hardworking and always available, Mike made our experience of this purchase so much easier. A great job and comes with the highest recommendation” Thank you AgainS & C – Buck Lake, Huntsville
It is with great pleasure and appreciation for me to recommend the services of Jim Gardiner and the entire Gardiner Team. Jim’s awareness of community by-laws and market related activities extracted incremental value for us when we were finalizing the purchasing agreement.JB – Mirror Lake