Weak Housing Market Causes Insurance Concerns

In the midst of a foreclosure crisis in the United States and the soft housing market that has lingered, more than 12 million homes are currently sitting vacant — with more than 2 million of them offered for sale.¹

A larger inventory of available homes means that it typically takes longer for homes to sell. The hard reality is that, depending on their employment and personal financial situations, sellers must sometimes move to new homes and even new towns before their old homes are sold.

Homeowners may not realize that the decision to move out of a home can affect their insurance coverage. In fact, there are a number of insurance issues for homeowners to consider when they are forced to leave a home unoccupied or rent it out to new tenants.

Unoccupied = Increased Risk

Vacant homes can attract vandals and thieves — and are more susceptible to fire and water damage — but they may also be vulnerable to a number of additional liability issues, such as when kids or teens enter the property to swim in a pool or party with friends.

For these reasons, insurers consider vacant properties as more risky, and policies often have vacancy exclusions for vandalism and broken glass that can be invoked if a property is left empty for more than 30 or 60 days. In some cases, insurance coverage may be discontinued entirely.

An endorsement that counteracts the vacancy exclusion may be available in conjunction with your standard homeowners policy, but it might not be offered by every insurer. If it isn’t available, a separate vacant-home policy — which covers unoccupied homes for an extended period of time — may be available. These are useful not only when a property is on the market but also when a home is left unoccupied while being remodeled or the owner takes a vacation longer than 30 to 60 days.

Protect Your Investment

Many sellers become frustrated with the pace of home sales and opt to rent their homes out instead. Even reluctant landlords need to revisit the insurance topic to ensure that their properties are adequately covered.

Landlord policies are slightly different from standard policies that cover owner-occupied properties. They cover the home and other structures, any of the contents that belong to the owner, lost income resulting from damage to the building, and legal fees and liability coverage in the event that a tenant or other individual is injured on the property. Landlord policies generally do not cover personal property that belongs to the tenants.

Some property owners require tenants to show proof of their own renters insurance policy, which covers the renters’ belongings and provides them with their own liability protection. The extra protection might prevent a tenant from suing a landlord in the event of a fire or other mishap on the property.

Ask for Advice

Vacant home insurance can be significantly more expensive than a standard policy that is already in place. However, homeowners who leave their homes unoccupied for an extended period of time and do not notify their insurers could be violating their contracts — and rendering themselves entirely unprotected.

The laws regarding vacancy and property insurance vary by state, and policy restrictions can differ for each insurer. Prior to vacating a home, owners should understand the terms of their specific insurance policies.

It’s important to discuss a potential move with your insurance agent well in advance. He or she can review your current policy as well as your needs, and often can recommend the best course of action for your personal situation.

1) U.S. Census Bureau, 2009

The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. © 2010 Emerald.