It has become more and more commonplace in the Muskoka Lakes to rent out our cottages for a few weeks each year.
As with any important and valued asset, owners need to be informed and ensure we remain adequately protected. It is critical that owners fully understand how their insurance policy will or will not respond in the event of a cottage loss which has rental activity.
Most cottage and other property insurance policies do not automatically extend coverage for rental activity. The insurance contract is normally underwritten to provide coverage to an owner occupied cottage, as well as invited guests. Renting to a third party is considered a different risk and requires a change in the contract. In insurance terms, this change is considered a material change in risk. The typical consequence of failing to advise your insurer of rental activity is a voided policy and all coverage to an otherwise insured claim is denied.
Jayne McCaw, of Jayne’s Cottages, sees more activity than most acting as an owners’ rental representative; she notes: “Cottagers definitely need to address this issue as your insurance needs to work correctly.”
The good news is that some insurance companies are starting to better appreciate the need and benefit to cottage owners to rent for a few weeks each year and that the cottage market landscape is changing. Many are now prepared to offer realistic terms for rentals – BUT they need to know about rentals up front; not after the fact.
Depending on the level of rental activity, an insurance company will decide whether or not to continue to offer insurance at all and whether or not there will be a change in coverage provided, or premium. It is critical that your broker and your insurance company be informed of any rental activity and for permission to be granted in writing in order to ensure coverage is in place at all times.
Plan in Advance
If you plan to rent, ensure you inform your Broker in advance and do not leave it to the last minute. Insurance Companies need time to receive the new information and respond accordingly. In a worst case situation your policy may need to be placed with a new insurer – and that takes time.
If you have any questions, please do not hesitate to contact our office.
Wishing you a sunny and safe 2015 summer!
David Browne/Philip Goad
Martin Merry & Reid Limited, The Muskoka Lakes Association recommended broker.