THURSDAY, MAY 18, 2017
Standard homeowners insurance companies love when houses are occupied. They don't when they're not. (they REALLY don't)..
So, yes, a vacant home affects homeowners insurance, with the worst case scenario often being cancellation of the existing policy. Here's why.
It’s all about RISK
The foundation of insurance is risk. And a vacant house poses way more risk than one that is occupied regularly.
Here's examples of risks associated with vacant homes
- Thieves break in and steal the copper plumbing (don't laugh- it’s happened in my neck of the woods more than once).
- The water pipes freeze and burst.
- The hot water heater croaks and floods the house.
- A homeless person decides to make your house his home. He starts a fire and POOF, your house goes up in flames.
But wait, you say, “Can’t those same things happen while I am living at the house?”
Absolutely. But, here’s the difference:
If the house is vacant, the damage may not be discovered for days. If you live there, you’ll notice a problem much sooner, like when I went into my basement and noticed the lake that had formed on the floor and the water running down the front of the water heater.
So what does a home insurance company consider a vacant home?
Interestingly enough, in my analysis of policy forms for our various homeowners insurance companies, I discovered that not one of the policies offered a definition of vacant.
So I decided to check with the claims department for their definition, because let's get real- the claims department ends up determining whether a house is vacant or not. Although the definitions weren’t identical, they did share a common theme.
- Vacant- A building with nothing in it.
- Unoccupied- The temporary absence from a building of an occupant, but with the occupant’s furniture and personal effects remaining.
Another way to differentiate the two- if the building is unoccupied, you could simply just move back in without disruption. If it’s vacant, it would take a lot of work to get it fit for occupancy.
BIG exclusions that affect your homeowners insurance when your house is vacant
- Vandalism and malicious mischief if the dwelling has been vacant for more than 30 consecutive days immediately before the loss. Go back to my example about the theft of the copper pipes. Or even worse, someone breaks in and decides to put holes in the drywall, rip out the cabinets and overall just totally “f” up the house. (again- I’ve seen it happen).
- Freezing of a plumbing, heating, air conditioning or automatic fire protective sprinkler system, or of a household appliance IF you have not maintained heat or shut off the water supply and drained the system and appliances of water. Hmm, how often are one or both of those conditions met if you’re not living at the house anymore?
Note: these are pretty big exclusions and situations we've seen happen. Trust me when I say you don't want to be in this situation and find out you don't have coverage.
How to Insure Your Vacant Home
We typically see two situations where a home becomes vacant: when you buy a new house and put the existing house up for sale OR the insured dies, leaving the house empty and up to the executor to sell it. I've listed four possible solutions below, starting the best case scenario.
Solution #1: Ask your existing home insurance company if they will allow you to keep the existing policy active at least until the renewal. If you've built some history with a home insurance company (big PLUS to working with an agent- they go to bat for you and plead your case), ask your agent to see if that company will continue with the existing policy until the renewal. THIS is always the best case scenario. Even if there are only 3 months left on your current policy, it still gives you 3 months while you're searching for other options.
What if your insurance company won't continue the existing policy? Then it's off to Solution #2.....
Solution #2: Again, your agent may be able to sweet talk your existing home insurance company to write a non-owner occupied policy (commonly called dwelling fire) with a high deductible (many times "high" is considered $1,000) and on the most basic form. They also tack on a vacancy surcharge (usually between 200-300% of the base premium). Wait a minute you may say- this doesn't sound like such a great deal.
Here’s the benefits of this approach:
- You keep with the same company, which could entitle you to additional discounts that you might not get with a standalone policy (for example, one of our companies offers a package discount if they already insure your primary home).
- Simpler application process- if you have to go the non-standard route, trust me, there’s a decent amount of paperwork, affidavits and just a general pain in the butt process.
- Since a property policy is written on an annual basis, the company will usually stipulate you have that entire year to get the house sold. If not sold within the year, they would cancel the policy (so this buys you TIME).
What if Solution #2 doesn't fly? Then it's off to Solution #3!
Solution #3: Re-write to a non-owner occupied policy, but with a different company. We have some options for vacant homes with American Modern Insurance. It’s a standard form without the mountain of paperwork you would need in the non-standard market. We’ve used this option with several of our customers. Please note that vacant homes under this option still need to meet the basic underwriting requirements such as updates, basic upkeep and few hazards.
If all else fails, then Solution 4 is the last resort.
Solution #4: Write a non-owner occupied policy in the non-standard market. Although not ideal, this is usually the option of last resort. We see this when a property hasn't been well maintained or it doesn't meet other underwriting requirements,. The application process is a little more involved and it’s possible you may not get as broad of coverage as you’d like, but it’s better than nothing. Premiums are not cheap, but remember the risk examples mentioned earlier? That’s the reason. BIG claims money.
As you've read, a vacant home affects your homeowners insurance in several ways, with the worst case result being cancellation of the policy and no replacement coverage. Luckily there are solutions that help lessen the blow and give you the coverage you need to prevent claims problems. Hopefully one of the solutions discussed above is the answer you've been looking for. If you have any questions, please give us a call at (937) 592-4871 or visit our home insurance page on our website. We're happy to discuss our vacant home insurance options as well!
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