- ask that you add this coverage and pay the appropriate premium;
- decide not to renew your home insurance contract;
- cancel your policy.
Having to pay for the required additional coverage (known as a “rider,” in insurance language) is the best scenario. For most, this will mean an extra monthly fee that starts at $10 per month (and goes up, depending on the coverage and your needs).
But what if your insurance provider decides not to renew your contract? This may occur if the insurer now considers you a higher-risk customer. If it does, your insurer will send a letter advising you that they will not be renewing your contract at the end of your policy term. Thankfully, a non-renewal carries no stigma, but it does mean you have to shop around for a new provider, and appropriate coverage. (This is an excellent time to be upfront about your short-term rental business.)
Of course, the most severe situation is when an insurance provider chooses to cancel the policy before the end of your contract term.
While provincial law will dictate how and when an insurer can cancel your policy, most jurisdictions will consider a breach of contract as sufficient enough reason to cancel your policy. If you receive a cancellation notice, you’ll probably have trouble finding coverage from other standard insurance carriers, and will have to pay more for coverage through the “non-standard” insurance market, where premiums can easily jump by 10% to 50% more than what you originally paid for coverage. For those living in Ontario, where the median annual house insurance premium is $1,284, according to a 2018 study by JD Power, this could mean forking out an additional $642 per year on homeowners’ insurance. And this doesn’t include the additional coverage you’ll need to add on for your home-based rental suite business.
Before cancelling your policy, the insurance company must give you written notice, typically a week to 30 days prior to the effective date. If applicable, your insurer will refund any unused premium you have already paid. If this happens, you’ll need to work quickly to avoid becoming uninsured for even a short time. Call an insurance broker immediately, explain the situation and then be honest about what coverage you require. The key is to work quickly and not ignore the situation, as not having insurance on your home could you leave you open to catastrophic financial loss and even the cancellation of your mortgage contract (most lenders legally require you to carry home insurance as part of the mortgage loan agreement).
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You can avoid this situation by being proactive. As soon as you think of renting out even a single bedroom in your house, start shopping for home insurance quotes that include a home-based business rider. Most insurers provide this coverage, which means you can shop around to get the right coverage for the best price.
Watch for gaps in your coverage
Some homeowners balk at paying extra for home-based business insurance, particularly when the short-term rental site they’re listed on already offers coverage.
For example, Airbnb offers Host Guarantee coverage, where hosts pay nothing extra for up to USD$1-million in coverage for any damage or destruction to belongings or property caused by a guest booking. “It’s a great perk, but there are gaps in coverage,” Mitchell warns. For instance, many types of personal belongings aren’t covered, such as furniture, electronics, artwork, antiques and collectibles. These coverage exclusions are stated plainly on the website, but many hosts end up missing this information. “Without a separate home policy, a homeowner could leave themselves susceptible to serious financial risk.”