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Airbnb: cash cow or money pit?

Before embarking on this method of generating additional income, let a professional advise you on the insurance implications.

NOMPU SIZIBA: Airbnb has really taken off in South Africa. There are some 35 000 hosts around the country. Since it was introduced in South Africa in 2015, it’s apparently made some R3.8 billion in income for those hosts.

As we head into the festive season, and with summer holiday vibes soon to be upon us, things are about to get busy for Airbnb hosts as they accommodate holidaymakers from near and far. While it’s a great way to earn extra income, it’s important that hosts guard against any unexpected incidents that may arise with the effective renting of their private space. Renting to complete strangers is a big risk, and therefore it’s worth considering what insurance options are available, just in case.

Well, to break down the issues for us, I’m joined in the studio by Christelle Colman, the managing director of Elite Risk Acceptances. Thanks very much Christelle, for joining us. It sounds like the Airbnb industry has been quite a gamechanger in giving households an additional income. But there is always a risk in renting your private space effectively to strangers. Tell us just how bad the risk can be.

CHRISTELLE COLMAN: Ooh, it can be quite bad. Let’s start off with saying that most insurance policies do not automatically cover you if you rent your property out, because insurers see it as a change in risk, in the behaviour of the property, and in the risk profile. It’s very important that you check with your insurance company what the cover is, and what you don’t have.

We’ve got two aspects. We’ve got the damage to personal property, or the theft of it, or someone spills wine all over your carpets, with malicious damage and all of that. The bigger problem, I think, that’s faced by people who rent out their properties is the potential liability exposure.

If you think about international tourists coming to South Africa, and there is some sort of defect in your property and they trip and fall, and some major medical problem occurs as a result of that, they can hold you legally liable for loss of income, medical expenses, and all of that. With international tourists it’s in foreign currency, so you can be financially ruined if you don’t understand the risks.

NOMPU SIZIBA: Absolutely. So, what kind of cover would you need to ensure that you are covered?

CHRISTELLE COLMAN: We are talking about different things. I always use the example of having a holiday house at the coast. It’s your own property and from time to time you rent it out. It’s primarily still a residential property that’s owned by you.

Then some buy property for investment purposes. They furnish it and it’s rented out on a permanent basis. That’s one of the other extremes at the end of the scale.

Then, between all of this, you have things like Airbnb and different letting platforms. You can use either Gumtree or Airbnb; there are different ways of getting these clients. It’s very important to get protection against damage to your physical property, against theft of your physical property. So you need to be very aware of the liability exposures that you face when you rent your property out.

NOMPU SIZIBA: You said at the very outset that it’s important to consult with your insurance company. But what if you take it for granted that, you know what, I only rent out my property occasionally and, if somebody gets hurt or if there is damage to my property, my normal home cover should cover me.

CHRISTELLE COLMAN: What I can say to you is that 99% of short-term personal insurance policies in this market exclude business-related risks. So it would be automatically excluded, and it would be an incredibly short-sighted approach to take, especially because you would assume that people are doing things to generate an additional income, to sweat their assets by way of renting the property out.

So, if you are going to go through all that trouble of registering yourself on the Airbnb platform, or any other letting platform in the South African market, make sure that you’ve got the right insurance cover in place.

Something else I would like to mention is if you, for instance, use Airbnb – and I speak from experience, I also have an apartment that I rent out in Cape Town to generate some additional income, which is why I know about it – as part of the Airbnb platform they actually include US$1 million of liability insurance, for liability specifically. So that doesn’t cover possible physical damage to your property – the movable property and the actual property itself.

NOMPU SIZIBA: So, if somebody slips and falls, it would cover that?

CHRISTELLE COLMAN: Yes. But I have also read that it is quite a laborious process to get the claim settled. It’s not as good as when you would have your own proper local insurance policy. So it’s very simple and straightforward.

If you decide to embark on the road of generating an additional income, speak to your insurance company or insurance broker, and let someone advise you properly. And then the most important  thing is, get it in writing, because claims normally happen only two or three years down the line. You have a fuzzy memory and you don’t remember all the details. Get it in writing so you understand exactly what you are covered for, and that the insurance company or the brokers commit that you will be paid out if something goes wrong.

NOMPU SIZIBA: Many thanks to Christelle Colman on this important  advice.

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Very good advice. If renting out, always inform your insurer for extra cover and check the cover given, otherwise in case of a patron claim you could be financially ruined.

We all need more insurance. What about Divorce insurance? Has anyone thought of that yet? Dr. Debt

If not insured, you might have to pay from your own pocket for incidental damages. However, when insured, it is the insurer who will “damage” your pocket slowly but surely, month by month. That is why insurance companies are so profitable. Rather save the equivalent of your monthly insurance premiums and use the savings to pay for incidental damages. Start with a lump sum. Your savings account will grow over time despite these incidental withdrawals. The only insurance you really need is for fire damage, else your savings account need to be boosted by a few million from the start.

Most of these Airbnbs are fly-by-night cowboys hoping to make a quick (untaxed) buck.

But theye aren’t properly insured for public liability. If you are injured (eg. permanently disabled) on their premises, good luck trying to sue them.

Anyhow, the incoming legislation regulating how many nights they can rent out will kill this little industry right off.

Oh, and Kieswetter is going to be asking some awkward questions in their next tax returns.

Airbnb has that insurance in place for thier travelers already….
No body makes a killing on airbnb….its cents back on the Rands u have invested.
Unless u are truly desperate the jiuce is not really the squeeze

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