In today’s sagging real estate market — where homes often remain unsold for months on end — sellers sometimes have no choice but to move and leave their properties vacant for a time.
Those owners might be surprised to learn that an insurance provider could drop their homeowner’s policy coverage. That’s because empty homes are riskier to insure, according to insurance experts.
A vacant house is an “attractive nuisance” that appeals to vandals and thieves, says Michael McRaith, director of the Illinois Department of Insurance in Chicago.
Vacant homes also present numerous liability issues, says Pete Moraga, a spokesman for the Insurance Information Network of California, a nonprofit consumer education organization that represents various insurers.
“Kids climbing over a dilapidated fence could get hurt, or teens partying in a vacant home could fall and slip,” he says.
Homeowners looking to insure a vacant home typically have two options: buying an endorsement to their existing homeowner’s policy or purchasing a separate vacant-home insurance policy.
Silence is not golden
If your home is soon to be vacant, it may be tempting to leave the property without notifying your existing insurance agent of the change in the home’s status.
But simply hoping an existing homeowner’s policy will cover you in such circumstances could be a mistake, Moraga says.
“Most policies have exclusions for ‘neglect’ or ‘abandonment of property,'” he says.
A vacant exclusion generally kicks in after a home has been empty for 30 or 60 days.
“If a homeowner is not living in the home and does not notify their insurance agent or company that the home is sitting vacant, any claim for property damage or liability under the homeowner’s insurance policy could be excluded or constitute insurance fraud,” Moraga says.
Laws vary by state, and restrictions vary by insurer. So homeowners must understand an existing policy’s terms prior to a change in status. Talking to an insurer can help you discover coverage options.
“The time to talk to your insurer is before you move,” Moraga says.
In some cases, insuring a vacant home is as simple as purchasing an endorsement to the existing homeowner’s policy.
State Farm Insurance in Bloomington, Ill., is one company that offers such an endorsement, says Dick Luedke, a spokesman for State Farm.
A State Farm standard homeowner’s policy no longer covers certain types of damage once a home becomes vacant, Luedke says.
“After the home is vacant, we do invoke an exclusion for vandalism and glass breakage, and that applies after it’s been vacant for 30 days,” he says.
However, by purchasing an endorsement, homeowners “buy back” that exclusion. According to Luedke, the cost for such an endorsement is usually under $100, and coverage lasts for the duration of the policy period.
Not every insurance company offers such endorsement. If an endorsement is not available, consider purchasing a vacant-home insurance policy, says Jim Gontjes, a regional product manager for Foremost Insurance in Caledonia, Mich.
This type of policy covers homes unoccupied for an extended period of time, usually more than 30 or 60 days. The vacancy could occur for a number of reasons, such as the property being for sale or undergoing renovations. The insurance also would cover the property if the owner was away on an extended trip.
Companies that offer vacant-home insurance policies typically also sell other types of specialty insurance, such as coverage for boats, motorcycles and rental properties, says Gontjes.
To find an insurer that offers vacant policies, homeowners should ask their existing insurance agent for recommendations, Gontjes says.
Their names may not be as recognizable as more popular insurance brands, so research is crucial to finding a reputable seller, Gontjes says.
“You can check their A.M. Best rating to get an idea of their financially stability,” he says.
Depending on the policy, vacant-home insurance term lengths are usually from three months to a year, Gontjes says. He advises homeowners to ask companies whether they offer a prorated policy refund if the home becomes occupied again before the end of the term.
Some insurers will offer this return of premium, but others with “fully earned” policies will not, says Gontjes.
Vacant-home insurance policy prices vary widely, says Gontjes. Pricing is based on factors that include the state in which the home resides, the amount of coverage purchased and the property’s fire protection class.
Moraga adds that “vacant policies are priced based on risk,” and McRaith says such policies are significantly more costly than standard homeowners insurance, which may cost just one-third as much as vacant-home insurance.
Despite the fact that the standard policy would likely be cheaper, homeowners shouldn’t try to keep their existing homeowner’s insurance if they plan to vacate their home. If they do, they’ll probably violate the terms of their contract.
“The best advice for homeowners is to be honest with their agent or company and discuss the best course of action for their situation,” says Moraga.
You can compare home insurance quotes on Insureme.com, a Bankrate company.