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Renting out your home: know your insurance policy

By: Werner Bosman, CEO of Short-Term Insurance at PPS

According to an Airbnb report 2018, Airbnb generated an estimated $678 million which had an economic impact in South Africa, supporting over 22 000 jobs across the broader South African economy. The report showed that two million guests arrived at Airbnb listings in South Africa and three million five hundred thousand arrived across Africa as a whole.

For many South Africans, the home rental business has helped them generate a second source of income for their household needs. However, renting out your home has many implications especially insurance risks that most people don’t think or know about. It is therefore essential that if home owners are planning to turn their homes into rentals, they should inform their insurance provider beforehand.

Renting out your home opens up a host of insurance issues that you need to consider such as building contents, loss of income as well as public liability. Unfortunately, many home owners don’t realise that a property insurance policy only covers the property being used for private residential purposes. So, what happens if your guests cause damage to your property?

Informing your financial advisor about changing your home to a rental will ensure that your insurance policy is updated and that whatever damages you claim related to the rental of your home will be insured for risks related to the rental. Many home rental owners assume that they would be covered by a household policy should anything happen while their home is being used for rental. Unfortunately, that is not the case. Some insurers consider the rental as a business activity, which may be grounds to decline a claim if the property is not underwritten correctly.

It's important that you understand what your policy says and the responsibility is on you as the owner. Most policies will include standard restrictions when renting such as exclusions in respect of malicious damage and theft. Also, insurers may apply additional terms and conditions dependent on specific circumstances disclosed by the policy holder.

In some cases, if needed, insurers can provide additional cover, as certain insurance policies don’t include a rental clause. This is usually up to a maximum of 25% of the sum insured, however, it is limited to the monthly rental value that the home would fetch for in the local rental market.

Speak to your financial advisor and insurer to understand the level of risks on your current policy. Most policies will include liability sections which you must opt for, such as injury, illness or death to a third party and damage to third party property.

Nevertheless, renting out your home or property can be beneficial for your family’s finance; however, it does come with risks.

Consult your broker or your insurer to make sure you understand the dangers of non-disclosure and read through your policy carefully before making the decision to rent out your home. This will help avoid any unnecessary surprises upon claiming, but it will also provide peace of mind.