The IA Newsletter, June 2011

How Your Home Insurance Can Vanish!

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How your Home Insurance
Can Vanish!

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It can happen unexpectedly. Maybe you took an extended vacation. Perhaps you placed your house on the market and moved into a new one. Or maybe you've checked in to a nursing home temporarily. If you've been out of your home for any reason -- including renovation -- your homeowners insurance policy may have moved out, too.

Unfortunately, a clause common to homeowners policies voids coverage on vacant homes -- and you probably won't realize your insurance has vanished until it's too late.

Most insurance companies will give you a time frame for how long your house can be vacant before coverage is canceled. According to the Insurance Information Institute, most insurers discontinue coverage on a home if it's unoccupied for more than 30 days. Others allow up to 60 days.

What's the deal?

Insurance companies consider vacant homes to be high risks. Unoccupied homes are more likely to experience thefts, vandalism, fire and water damage.

"Having no one in the house can leave potential problems undetected for a long period of time," says Michael Barry, an insurance institute spokesman. "Who knows when someone will report a leak in the basement or the electrical problem that can lead to a fire -- and, depending on the neighborhood, there's the potential for squatters."

Vacancy permits provide some coverage

Before you vacate your home, take a good look at your insurance policy and ask your agent for guidance. Some companies will grant you a vacancy permit, provided it's requested before the home goes unoccupied.

However, the permit does not cover the same perils as your homeowners policy. According to the insurance institute, a vacancy permit covers such perils as fire and wind but not theft, vandalism or water damage.

Conditions vary from company to company, so check with your agent for specifics.

Vacancy insurance: More expansive, more expensive

If you want to insure your vacant home against the same hazards your standard policy covers -- including theft, burglary and vandalism -- you'll need to purchase vacancy insurance. But not all insurance companies sell it.

Foremost Insurance Group, which specializes in selling vacancy insurance, offers a policy to cover your home against fire, wind and hail, in addition to "vandalism and malicious mischief." The policy also includes liability coverage in the event someone is injured on your property.

Foremost insures homes that are empty because they are for sale, being held in the name of an estate or under renovation. It accepts vacant homes valued up to $1 million, and there is no restriction on the age of the home. Policies can be purchased on an annual basis and canceled at any time.

Vacancy insurance can be expensive, though. Loretta Worters, a spokeswoman for the insurance institute, says homeowners can expect to pay 50% or 60% more for a policy on an unoccupied home than for a regular policy.

You may be able to reduce your premium slightly by arranging for someone to check on your home regularly, she adds. The price of a policy also depends on whether the home has a central alarm system, deadbolt locks and smoke detectors. Insurers also may assess whether a policyholder has winterized the home to protect plumbing fixtures from freezing and can factor in how long the house will be vacant, she says.

Saving money by renting out

There may be a less expensive option to buying vacancy insurance. Tully Lehman, a spokesman for the Insurance Information Network of California, recommends that you consider renting out your home while you're away. You will have to buy a landlord policy, which generally costs about 25% more than a standard homeowners policy, according to the insurance institute.

But that's still much less expensive than buying a vacancy policy -- and you're collecting rent to boot.

Insurance companies don't need to spy on you to determine if you've left your home vacant. In most cases, it will become obvious when you make the claim. For example, if your home was vandalized by squatters (who made it their own for a few weeks), that information will appear in a police report. You may tell your insurer that you've been gone for only 29 days (to elude the 30-day vacancy deadline), but if police question your neighbors and they say you've been gone for months, you may find your claim denied -- and your policy terminated.

It's always best to be honest with your insurance company.

This article was reported by Kat Zeman for Insure.com.