What you need to know about cottage insurance
And how underinsuring your cottage could really hurt you
You could say that Paul Horne and his family rent out their cottage on the black market. It’s a place that would be coveted by anyone looking to spend a week at an easily accessible, rustic summer retreat. Yet they rent only to friends, always through word of mouth, and prefer payments in cash. The reason, says Horne, is simple. “We’re not insured for rental.”
Horne (not his real name) knows he’s playing with fire. But for his elderly parents, who own the cottage and live on a fixed income, the topic of insurance is a non-starter. “The mere thought of paying commercial premiums to rent the place for a couple of weeks raises their blood pressure,” he says.
The Hornes are hardly unique. For many cottagers, the quick and easy way to cover property taxes and maintenance costs is to rent the cottage for a few weeks every summer and not sweat the details. But if cottagers who rent their property without proper insurance ever incur damage, even while they are the ones inhabiting the premises, their insurer could balk. “If it’s discovered that the property was being used in ways not cov-ered by the policy, then it’s possible that any claim could be denied,” says Ross Robertson of R. Robertson Insurance Brokers, a Toronto brokerage that insures many cottagers.
Moreover, says Robertson, the Hornes are harbouring an antiquated understanding of cottage insurance: Rentals no longer require commercial insurance. Most brokers can customize a policy for rental or other risks. Furthermore, insurers no longer insist upon carrying your home and auto insurance before taking on your cottage. “Cottage insurance programs have evolved a great deal over the last decade,” says Terry Rees, the executive director of the Federation of Ontario Cottagers’ Associations, which launched its own cottage insurance plan in the spring of 2011.
It’s cottagers who are still catching up. Many continue to carry decades-old policies, relics that no longer reflect the value of their cottage. According to figures compiled by Royal LePage, values in Muskoka, for instance, have more than doubled since 2000. But when it comes to insurance, many cottagers seem to have little idea of the market. “Every now and again I get a call from someone saying, ‘I’ve got $40,000 of coverage, and I’m paying $300 a year. What can you do about those premiums?’ ” says Bob Dixon of Mason Insurance Brokers in Welland. “I tell them that if they’re shopping for price, they should probably stick with the policy they’ve got. But they need to realize that they can’t build a shed for $40,000.”
For some, having a cottage that’s deemed “uninsurable” is like a badge of honour: proof that your getaway is as rustic a woodstove-heated, propane-lit tinderbox as can be built. But brokers say the truly uninsurable cottage is as rare as a cougar sighting. Ross Robertson recently declined to insure a cottage in northern Ontario because “the only way to get building materials to the site was to airlift them by Sikorsky. It was extremely remote.”
By and large, “uninsurable” is code for “fix a few things first.” Move an underground oil tank above ground, or replace knob-and-tube wiring. A cottage with a woodstove, a frequent concern, can usually be insured once the stove is approved by a professional certified in Wood Energy Technology Transfer, or WETT.
The competitive nature of the industry means coverage can vary widely between insurers. Some companies offer special pricing or packages—when they will take on the risk, that is. “Some underwriters don’t have any appetite for remote properties that are uninhabited for much of the year,” says Robertson. Others draw a different line. Some insurers won’t cover log homes, as repairs for even minor damage can be elaborate, or won’t go near cottages with multiple owners, as Lyn Lunsted and her four siblings discovered when they tried to insure their three-building Kawartha-region property. “We all called our home insurers. As soon as we said there were five owners, the answer was the same: ‘Not interested.’ ” They eventually found an insurer, but, she says, “It helped that we were related.” Some insurers avoid cottages owned by groups of friends. When property damage or a liability issue leads to conflict between owners (who is at fault, who should pay the deductible?), relatives are more likely to resolve things quickly and without recourse to the courts.
Cottage insurance is like home insurance turned inside out. As a rule, a home insurance policy is comprehensive and will cover all risks, save for exemptions named in the policy. A year-round winterized cottage can be covered as a second home. Seasonal cottages, though, usually have a “named-perils” policy, which will cover only the risks you want covered.
As a result, cottage owners need to consider carefully what to insure themselves against. After 20 years of insuring cottagers and managing their claims, Robertson knows exactly what needs coverage. The top cause of loss? Windstorms. If a tree falls in the forest and no one is there, it may or may not make a sound when it crashes through your cottage roof. “I tell people to take an inventory of their trees and have them checked by an arborist,” Robertson says. “It’s cheaper to remove a tree than to pay a deductible.”
The second major cause of loss is plumbing failure—and the damage can
be extensive. “If someone forgets to drain the plumbing and a pipe cracks when no one is there, the water will run continuously until the next visit,” he says. Theft and vandalism (“a distant third”) and fire (“a very distant fourth”) round out the top reasons for cottage insurance claims.
Other key coverages to consider include building collapse by snow load, as well as smoke and animal damage. Cottagers may be more inclined to insure against bears than thieves. Robertson notes, however, that raccoons can often do as much damage as bears, especially if they move in for an entire winter, and you may not be covered for raccoon damage. The bottom line: If you hold a named-perils policy, acquaint yourself with the details of your coverage.
Call it the cottage insurance paradox: Even though your cottage is likely worth less than your home, and your cottage insurance policy offers less coverage than your home policy, your cottage policy will likely be more expensive.
“In general, with seasonal cottages, the cost is higher because the risk is greater,” says Mason’s Bob Dixon. “And the risk is greater because you’re not there.” In the city, a broken window will be patched up overnight and replaced in the morning. At the lake, it could remain open to the elements for a week, a month, a winter.
Country damage tends to be more extensive than city damage, especially with fires. City homes are usually close to a hydrant and served by a professional firefighting force. Most cottages are more than 13 km from a fire hall, a distance the insurance industry uses as its standard for calculating premiums. Which explains the timeless adage of the rural fire chief: “We haven’t lost a foundation yet.”
Another reason cottage insurance costs more is that many people have multiple buildings, from boathouses to bunkies, as well as boats. Most policies will cover all buildings and some boats (those less than 16 feet long or under 10 hp, for example). You can make your policy more affordable by excluding some boats and buildings, but you assume more personal risk. Another, more palatable way to control costs: If your cottage is stocked with hand-me-down kitchenware and garage-sale furniture, don’t insure the contents.
Still, the most significant factor in price is reconstruction cost. It’s a lesson David Smith learned in 2008, when a windstorm felled six giant white pines on his French River property, including two that went through the roof of his log cabin. Repairs took four weeks and cost around $30,000 —much of it used to transport workers and materials to the site daily by water taxi. His insurer paid the claim, but he knows he was lucky. “I only had $120,000 of coverage,” he says. “If those trees had fallen at a slightly different angle and knocked the cabin off its foundation, the rebuild would have cost about $300,000, and I’d have been out of pocket.”
Such is the hidden cost of inadequate insurance. In every cottage community, no matter how close to the nearest fire hall or police station, there are people who insist they can’t get coverage. The truth is that they either haven’t shopped around or they’re not willing to pay the premium.
And therein lies the second paradox of cottage insurance: Most people, desperate to escape the noise and chaos of their well-insured city lives, ironically find peace of mind on the deck of their drastically under-insured cottage. That peace of mind is a pleasant fiction, one that may one day come crashing down like a tree in a windstorm.