Cottage owners renting out their properties for extra income may be putting their insurance at risk without realizing it, because the moment a cottage is listed for short-term rental the coverage on it changes – and an owner who does not tell their insurer can be left with a denied claim, according to Katie Young (pictured), a sales broker at Mitch Insurance.
Renting changes both the policy and its price, Young said, because it changes the risk the insurer is carrying. "It obviously, for sure, changes the insurance policy along with the pricing, as there is a larger risk to the insurance company when the home is being rented out, or even a portion of a home like a basement apartment," she said. It also narrows the field of insurers willing to cover the property at all, since not every company will write a cottage that is being rented.
The trigger is not limited to renting the whole property. Young said putting even part of a cottage up for short-term let – a bunkie, a single room, a self-contained suite – changes the risk in the insurer's eyes just as a full rental does, and carries the same disclosure obligation. Owners who picture rental as an all-or-nothing arrangement, she said, can miss that a partial let counts.
The companies that do accommodate short-term rental tend to draw a sharp line around how it is done. Young said most will only allow it through established platforms that carry their own underlying coverage. "Most of the insurers that will accommodate will only allow you to use companies like Airbnb and VRBO, as they do have underlying insurance policies that can kick in," she said. An informal arrangement is treated differently. A cottage advertised through a channel like Facebook Marketplace, she said, is the kind of short-term rental many insurers will simply decline to cover.
The greater danger is what happens when an owner rents without telling anyone. Disclosure is the owner's responsibility, Young said, and the consequences of skipping it land at the worst possible moment. Failing to flag a rental exposes them on two fronts.
"They can find themselves either being cancelled for misrepresentation of their risk, or in a claim scenario, when the company comes to investigate and they find it listed on Airbnb, it could give them the right to decline that claim," Young said – because the insurer was never told the risk had changed. A property priced and underwritten as a private cottage is simply not the risk the insurer agreed to carry once paying guests are coming and going.
That principle, she said, is foundational to how the relationship works: insurance rests on the client's good faith that they have disclosed everything the insurer needs to know about the risk. The obligation is not the owner's alone, though. Young said the broker carries a duty to ask the right questions rather than wait to be told, because an owner who does not know the rules will not think to raise it.
"It's also up to us as a broker to make sure we're asking all the questions – if the home is being rented out, or if a portion of the home will be rented out – if the client never mentions it on their own," Young said.
That questioning serves a second purpose, she added: it lets the broker flag the rule in advance, so an owner who decides to rent later knows to call first. The change can mean the policy has to be moved to a different insurer altogether. "It will sometimes require them to be remarketed to a new company that can accommodate it," she said.
For Young, the practical message is that the income and the coverage have to be reconciled before a guest ever books, not after a loss. An owner who treats the rental as a private arrangement the insurer need not know about is the one most exposed, she said – the disclosure that feels optional is the very thing standing between a rental cottage and an unpaid claim.
"The onus is on them to disclose that information to their insurance provider or broker when asked, or when asking for a new quote," Young said.
