Avoid turning that dream holiday cottage into an insurance nightmare
You’re wandering the streets of an idyllic seaside town, soaking up the sun and taking in the sights and sounds of the summer.
You pause at an estate agent’s and glance at the houses on sale. And then it hits you – that perfect country cottage you always dreamed of is staring you in the face, begging you to buy it.
It would make the perfect summer studio for you to work in. And you can just about afford it, too. A few quick calculations, and you realise that if you rent it out as holiday let during the school holidays, it will cover the mortgage.
You make a viewing, fall in love with it, and sign on the dotted line. The cottage needs a little tender loving care, so you set aside some cash to redecorate, put in a new kitchen and bathroom, and buy some beautiful antique furniture.
It’s not until a few months further down the line, when you are the proud owner, that reality begins to kick in.
You’ve signed up with an online holiday cottage company that allows you to manage your bookings personally, and set aside the weeks you want to stay there yourself. You meet up with a friend for a chat, and tell her excitedly about your plans for the cottage.
“Sounds fabulous,” she says. “But what if the people staying there wreck the place? Or even worse – someone could trip on the stair carpet, break their neck, and sue you for millions.”
You get a cold sinking feeling in the pit of your stomach, and realise you had better check with your insurance company to make sure exactly what’s covered – and what’s not.
A quick phone call reveals that your existing buildings and contents insurance provider doesn’t offer any cover for holidaymakers staying in your cottage. Not just against breakages – but more importantly, there would be no public liability cover.
This is critical – for, as the name suggests, you can be held liable if a member of the public has an accident on your property. All policies cover family and friends as standard – people you invite into your home as guests. Tradesmen who need to visit your property are also covered.
But once you start charging people to stay there, the rules change. You simply can’t afford to take risks on this one. The unthinkable can and does happen – it’s just a lottery. And if you don’t get cover, you could, theoretically, be held personally liable if someone injures themselves in your property. All they would need to do is prove you were negligent – in other words, you didn’t take enough care to ensure that stair-carpet was properly nailed down.
And in a worst-case scenario, if someone were killed or seriously injured, the damages could run to millions. Without public liability cover, you could be made bankrupt.
But it’s not all doom and gloom. There are insurance companies out there who offer public liability cover for holiday homes.
Some only offer cover if the property is being permanently rented out on a commercial basis. Others will only offer cover if the guests using the property are friends and family.
But there is a small number of niche insurance companies who will give public liability cover on a holiday cottage that is used both by family and friends, and let out commercially for a few weeks a year.
To find them you will need to steer clear of the big names who advertise on our TV screens and search the internet for insurance brokers who specialise in this field – an internet search will quickly throw up some results.
Of course, everything comes at a price – you might be surprised at the big increase in premiums. A standard buildings and contents insurance policy can cost as little as £150. Add in public liability cover for commercial holiday letting and you could see that rise to more than £500.
A case study
Alan’s family have a pretty holiday cottage in Dorset. The property is actually owned by Alan’s sister, Jennifer, but Alan uses it most, as he and his fiancée also live in Dorset. The cottage is 20 miles from their home in Poole, and makes a great weekend getaway.
Alan, a qualified hypnotherapist, also uses the cottage as a base to meet some of his clients.
The family decide to start renting out the house during the summer months as a holiday let, to help pay for the upkeep. Since he uses it most, Alan takes responsibility for sorting out the insurance.
He searches the internet and finds a number of companies willing to insure the cottage as a second home, with occasional commercial lettings. But when he tells them he also uses it for hypnotherapy treatment, they tell him they won’t offer cover – at any price – because of the business use.
Eventually he finds one company that will agree to cover the property, but on the understanding it will not be responsible for any public liability claims from hypnotherapy clients.
In a panic, Alan phones the broker who arranged the professional indemnity insurance for his hypnotherapy business. He discovers that, unknown to him, his policy automatically offers public liability insurance for clients. This applies wherever Alan is carrying out the treatment – be it at home, in a therapy centre, at a hotel seminar – in fact anywhere.
Alan can now accept the holiday home insurance quotation, knowing that he is fully covered in the event of any public liability claims, whether from holidaymakers or hypnotherapy clients.