Is Your Vacant House a Financial Time Bomb?

One of the minefields lurking in most homeowners policies has to do with the problems that can arise when a home becomes officially “vacant,” by the standard established by insurers. I can tell you, from personal experience, practically no one I have ever asked is aware that their policies likely contain an exclusion regarding the matter of paying a claim if the house has been unoccupied for several weeks. A home can be deemed vacant by an insurer as a result of common occurrences that characterize the lives of most of us; for example, if you have moved from one house to another before selling the first residence, that home will generally be considered vacant by the insurance company, for policy purposes, after as little as 30 days. Alternatively, even if you still live in the home, but have been away from the residence for several weeks…due to taking an extended family vacation, for example…you can still find yourself in bad shape with the insurance company if a claim arises during your absence. The bottom line is that if you are not aware of the very real risks to your financial condition posed by the exclusions contained in most policies concerning vacant homes, it’s incumbent upon you to get up to speed as soon as possible.

It is not difficult to understand why vacant homes are troublesome to insurers. For one thing, they are ripe for vandalism; the empty house on the block can be an attractive destination for partying teenagers, curious smaller children, and those inclined to engage in outright vandalism for the thrill of it. Separately, even if a home is not “invaded” by anyone while it is vacant, the fact that it is uninhabited for a significant period of time makes it less likely that a plumbing leak, for example, will be noticed before it has the chance to do significant damage.

In some cases, it may be possible to resolve the issue by purchasing an endorsement to existing coverage, but, more typically, a specialized vacant home policy will have to be purchased to replace the existing homeowners coverage. That said, one of the problems with vacant home insurance is that it is roughly four times more expensive that standard homeowners policies; as a result, homeowners thinking about going this route will not infrequently balk at purchasing the a vacant home policy because of the price. This, however, can be a grave mistake. It won’t be difficult for a suspicious insurance company to do the digging necessary (to include speaking with neighbors about the comings and goings at the property) to determine that the house, does, in fact, meet the policy standard of being vacant. The result? Claim denied.

As I referenced in the first paragraph, it’s important to note that the basis for declaring a house “vacant” is not limited to events like one moving out of a home to relocate elsewhere and leaving behind the first home for sale, or being in-between renters for a few months. A home can be deemed vacant even if one still genuinely lives at the property, but is out of town on business, or on vacation, for a significant period of time. Imagine arriving home after a family trip across the country to find that a plumbing leak caused serious damage to the residence, and then, upon notifying your insurance company, you are told that your claim is denied because your home was determined to have been vacant for longer than the policy allowed.

Your first move is to review your policy to determine what sort of vacant house exclusion (if any) applies in your case. From there, contact your agent or insurer to find out what you should do if, in fact, it looks like your house will be vacant for a period that exceeds the limit outlined in the policy. If you will still be living in the residence, but out of town just temporarily, your present insurer may well be able to deal with this in-house, using an endorsement to the existing coverage. However, if you are relocating to a new home and leaving the old house empty while it sits on the real estate market for an extended period, it is likely that that you will have to purchase a special vacant home policy that replaces your existing homeowners coverage altogether.

If you do need to find vacant house coverage, it’s a good idea to use an independent agent. As mentioned, this is rather specialized coverage, and you want someone who can shop competitively for you, especially given how pricey it is. Also, note that vacant house insurance can be cumbersome in structure – for example, unlike typical homeowners insurance, vacant house insurance premiums are considered earned as they are paid. This means that if you purchase a six-month policy to cover a home that you expect to linger on the market for a while, but the house sells after just a month, there is no pro rata refund of premium coming back to you. My suggestion is that you find a policy that is as friendly as possible in this way – for example, it is more common now to find these kinds of policies with term lengths of just three months; if you need to renew, you can always do that.

In the end, you want to just be sure you are aware of the significant financial risks you may be assuming unawares by leaving your home vacant, as well as the steps to take to resolve any potential problems. Now you know.

The information contained here is for general information purposes only. The Financial Writer blog and Bob Yetman disclaim responsibility for any liability or loss incurred as a consequence of the use or application, either directly or indirectly, of any information presented herein. Nothing contained in this article, or any other article featured at this blog, should be construed as a solicitation or recommendation to engage in any financial transaction. You should seek the advice of a qualified professional before making any changes to your personal financial profile.

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