For homeowners in British Columbia, the beauty of the natural surroundings is unparalleled. But it does come with some caveats, such as risk of wildfires. Additionally, the trend of short-term rentals (STR) has gained momentum, offering homeowners an opportunity for extra income. Both situations bring questions about proper insurance coverage. Let's explore.
Wildfire Protection: A Vital Component of Home Insurance
BC’s breathtaking landscapes and lush forests make it a dream destination. Over the years, BC has witnessed a rise in the frequency and intensity of wildfires. As a homeowner, it’s crucial to ensure your property is adequately protected and insured against this potential threat.
Did you know that if there is a wildfire burning within 25 kms, as the crow flies, from the home you are looking to purchase, most insurance companies will not bind insurance for that property? This could affect your closing date, unless you are a cash buyer and you don’t need the mortgage. A strong and experienced real estate agent can help you navigate the proper way to protect your contract and how best to write terms to the contract that will not “kill” the deal at completion.
When purchasing a home in BC, especially in areas prone to wildfires, you will want to prioritize insurance coverage that specifically addresses this risk. Standard home insurance policies typically cover fire damage, but it’s essential to understand the extent of this coverage. Some policies might have limitations on coverage for wildfires or may exclude coverage for wildfires in high-risk interface areas.
To ensure comprehensive coverage, consider the following:
- Review Your Policy Carefully: Before finalizing your home insurance policy, carefully review the terms and conditions related to the fire and wildfire coverage. Be aware of any exclusions, limitations, or deductibles that apply.
- Consult with an insurance expert: Work with an experienced insurance broker who is familiar with the local risks and insurance options. They can help you identify any gaps in coverage and recommend appropriate solutions.
- Wildfire Mitigation Measures: Some insurance companies might offer discounts or incentives for implementing wildfire mitigation measures around your property. These can include creating defensible space, using fire-resistant building materials, and maintaining a safe distance between vegetation and structures.
- Consider Additional Coverage: If your standard policy doesn’t provide adequate coverage for wildfires, inquire about purchasing supplementary coverage or riders that specifically address this potential risk.
Navigating Short-Term Rentals and Insurance
The rise of short-term rental (STR) platforms, such as AirBnB and Vrbo, has opened up new opportunities for homeowners to generate income by renting out their properties to travelers. While this can be a lucrative endeavor, it introduces a range of insurance considerations that may not be covered by traditional homeowner’s policies. And can get you into short-term very “sticky” situations.
- Policy Review and Disclosure: If you plan to engage in STR, it’s essential that you inform your insurance provider about your plan. Most standard homeowner’s policies won’t cover commercial activities like STR. Failing to disclose this information could result in denied claims if a loss occurs while the property is being rented out.
- Host Protection Insurance: Platforms like Airbnb offer host protection insurance, which provides limited coverage for certain liabilities arising from guest stays. However, this coverage is not a substitute for comprehensive homeowners’ insurance, and it may have limitations and exclusions.
- Commercial vs. Personal Use: Insurance providers often differentiate between properties used solely for personal occupancy and those used for commercial purposes like STR. You may need to purchase a separate commercial insurance policy or a specialized STR insurance policy to ensure appropriate coverage.
- Liability Coverage: Adequate liability coverage is crucial when renting out your property. Guests’ accidents or injuries could lead to legal claims, making liability insurance an essential component of your insurance strategy. You never want to be on the “hook” for that!
- Property Damage & Theft: Your property might be at an increased risk of damage or theft due to the turnover of guests, especially if you are an absentee homeowner. Ensure your insurance policy covers these risks, and consider including coverage for damage caused by guests.
A personal story to indicate how important it is to understand your current insurance coverage:
My clients wanted to buy a STR property. The decision to purchase this type of property did not come lightly and took them over 3 years to decide on the right purchase. They found the perfect place and one of the conditions of sale was to ensure the buyers could obtain insurance for the property, at completion. The buyers spoke with the insurance company, which at the time held the policy. The broker said they can assume the existing policy, which was due 6 weeks later, in early August. Deal closed. Happy buyers - right?! Not so fast! Fast forward to August and in speaking with the insurance broker about the renewal and discussing the number of rentals new buyers had booked for August / September, the insurer said that the policy they were going to bind was for long term rental arrangement only and did not cover short-term rental! The previous owner was not in compliance and had the incorrect policy. At the time of the renewal, there was a wildfire in the area so my clients could not get the proper policy even though they were willing to do what they needed for the insurance to be proper. In the end, we were able to recommend a local contact who could help them asap, because there was a chance that new owners could lose the income for the entire month of August that was already booked. Plus, owners would have to pay back the full amount of the rental fees to the guests as compensation, because they were going to cancel within a certain timeframe, as per Airbnb rules.
A well-considered insurance strategy will provide you with a peace of mind, knowing that you’ve taken the necessary steps to secure your home against potential natural disasters and to navigate the complexities of short-term rentals in a reasonable and financially prudent manner. So be safe and happy homeownership from us at neuHouzz Real Estate Group.