2010 World Cup: Insuring rentals of private homes

In less than 100 days, South Africa will host the Soccer World Cup and many homeowners are expecting to make a small fortune renting out their homes to soccer fans. Doing so entails many risks, and of course, an opportunity for brokers to provide “best advice” and the right cover.

Given the expected accommodation shortage over the World Cup period, FIFA made a groundbreaking decision to - for the first time ever - sign up non-graded accommodation, including private housing. As a result, many homeowners are planning to rent their homes out to foreign visitors during the World Cup period. Their plans are being facilitated by companies such as Seeff Properties and Just Letting, who have launched letting services specifically for private homeowners wanting to rent out their properties.

The risks

However, renting out a private residence, or part thereof, creates certain risks which most people are unlikely to have considered.

“One of the main risks would be theft by the paying guests/tenants, which is generally excluded from a personal contents policy. The risk of tenants not paying is also not insurable in the short-term personal lines market,” says Gari Dombo, Managing Director of Alexander Forbes Insurance.

“But perhaps more importantly, renting out the property exposes the homeowner to liability claims from paying guests or tenants. If tenants are injured by something unsafe on the property or suffer food poisoning while renting the property, it could result in a major claim against the homeowner, and not all insurers will provide liability cover for this.” Homeowners should also bear in mind that tourists are not obliged to sue in South Africa, and they could find themselves being sued in another country where liability awards are likely to be much larger.

In addition, homeowners may also be forced to deal with a medical emergency, from minor ailments to more serious incidents such as critical injuries, hijacking, kidnapping and rape.

Tax implications

Considering the sums of money foreign tourists are being charged for accommodation, homeowners can rest assured that SARS will be watching closely.

Rental income will fall within the “gross income” definition and will be taxable. Expenses relating to the maintenance and upkeep of the property may be deducted pro-rata for the period, but the taxpayer will have to show that the expenses were related to the rental agreement. In addition, “expenses incurred in the production of income” may be deducted, for example, cleaning services, security, meals or shuttling provided to guests, provided these are stipulated in the rental agreement and accurate records are kept.

Opportunities for brokers

These risks not only present an opportunity for brokers to offer their clients best advice, but also to upsell them with the cover they require.

• Advise the insurer of the policyholder’s intention to rent out the property and ensure the personal liability cover includes liability to tenants or paying guests. Also ensure the limits will be sufficient to cover an international liability award.
• Homeowners should deal only with reputable letting agents, with whom they can conclude a proper agreement stipulating the agents’ obligations.
• Keep records of all expenses, correspondence and contracts for tax purposes and get advice from a qualified tax practitioner.
• Access to an emergency incident management facility is crucial. Provide cover options such as the SATIB24 Guest Crisis Call coupon that will provide expert advice and recommendations for handling an emergency as well as cover incident management fees, defined medical evacuation and outpatient intervention costs including trauma counselling.