Vacant Homes- A Special Risk

One of the misfortunes of the economy these days is the number of vacant homes for sale. Many of them have been vacated by owners who have moved on to another home, leaving their vacated home either vacant (little or no furniture or personal property) or unoccupied (no people) for a significantly long time. This an insurance problem because, after 2 months of vacancy, a homeowners policy significantly reduces coverage. 

Defining "Vacancy"

Vacancy is defined as not enough goods for occupancy. So, according to that definition, a home could be considered vacant unless it has kitchen appliances, table and chairs, at least one bed to sleep on, and somewhere to sit (i.e., a couch or chairs). If there is very little furniture, and nothing in the bedrooms, chances are, your insurer has the ability to apply the vacancy clause. At a minimum, the insured may have to spend sizable dollars to fight the company’s decision.

Vacancy and Homeowners Insurance

There are two problems with a home that is vacant greater than 60 days:

• Vandalism and glass breakage are excluded perils. In fact, some homeowners forms exclude any loss initiated by vandalism (ie kids burned down the home in the middle of the night)!  
• Most homeowners insurers won't continue to insure a vacant home.  If your policy is non renewed or cancelled due to vacancy, only a few markets will insure it, and at a far greater cost than a standard HO policy.   

Reducing the Risk of an Unoccupied Home

Even if you succeed at keeping your home fully insured and avoiding the vacancy penalties, you still face increased risks to your home because it's unoccupied. A major loss-even one covered by insurance-would be bad news in your efforts to sell your home, further delaying the sale by months. You can reduce your chances of having a major loss from break-ins, fires, smoke damage, and even water damage from frozen pipes by installing a central alarm monitored for burglar and fire/smoke and adding an optional temperature sensor to protect the pipes from freezing. The alarm will also get you a 10-20 percent discount on your homeowners rates.  Also, you can install automatic lights to deter intruders.

Another loss reduction strategy is to either rent your home on a month-to-month basis or have a live-in "caretaker" (i.e., a friend or college student who agrees to care for the property in exchange for housing). If neither of these options is feasible, have someone check on your home regularly.

Insuring a Vacant Home

If there is no reasonable way to avoid your home from being vacant, or if you simply would rather pay the insurance premium and not bother getting furniture in there, you generally have two types of insurance companies willing to insure your higher risk, unoccupied, vacant home. One type is specialty companies that cater to more difficult risks. The other type is surplus lines carriers.

Comparing Policies

It is essential when placing insurance in nontraditional markets that you compare actual policy forms. That is a big part of personal risk management. Ask your agent to recommend the best option for your particular situation.