Vacant Homes: Avoid a Financial Disaster

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house floodThe landscape of today’s real estate market is fertile with many vacant homes. We all know there are a lot of foreclosed properties on the market and they’re being purchased by investors with cash to spend. Others are going ahead and buying the bigger property at the better deal, while putting their home up for sale. Meanwhile, these homes can sit for weeks, months or years at a time until they’re sold.
What about the insurance to protect this property while it’s vacant? Well, vacancy is not acceptable to insurance companies and there are specific exclusions of coverage directly related to certain losses.

A vacant home is more susceptible to theft, vandalism, malicious mischief and during the winter, water pipes freezing and busting. As such, insurance policies have exclusionary language within them to address this concern. To put it in simple terms, if your house is vacant 30 or more days prior to a loss, caused by one of the perils I just mentioned, there is no coverage for the damages. So, you (the property owner) will be on the hook to pay every single dollar of the damages incurred. 
 
Don’t Let This Happen To You

I can recall from my days as a Property Claims Adjuster, going to a home during the winter for a water damage claim only to find water had been running for days before anyone discovered there was a problem. The home was up for sale and vacant, with no heat being maintained. The Natural Gas had been shut off for over three months. I knew this by making a phone call to the utilities to verify if service was on and if not, when it was disconnected.

The property owner was not happy when I had to tell them their policy would not pay the $60,000+ in damages to the hardwood floors, carpeting, subfloor, walls, ceilings, etc., because of the specific exclusion contained for freezing and bursting of plumbing system in a home vacant more than 30 days. Of course, they tried to blame it on their insurance agent because the agent did not write the proper policy. It’s always someone else’s fault, right? Well, the insurance agent had no idea the home was vacant and up for sale. When the policy was written by the agent, the property owner lived there. So, the blame fell on the shoulders of the property owner. 

What’s the Right Policy?
 
A preferred insurance risk is one that has a lesser chance of a loss and is priced accordingly. An occupied home by a homeowner, or tenant in the event of a rental situation, is much more desirable from a “risk of loss” perspective than a home that has no one in it. The price for this preferred risk is also very reasonable. 
 
However, when the home becomes vacant, the risk becomes non-preferred and must be written with an insurance company that will accept the higher risk. This also comes with a much higher price, many times 3-5 times higher policy. Translating this to dollars, the policy can go from a preferred price of $500 per year to $1,500-$2,500 per year for the policy.
 
Many people don’t want to pay this higher premium and elect to keep the same policy in force while the home is vacant. This is like playing Russian Roulette. In the example I mentioned earlier, had the property owner put the proper policy on the home after it became vacant, he would have gladly traded $2,500 per year in premium for a $60,000+ check from the insurance company to repair the damaged home!

Hint for Saving Money
 
If you’re faced with the situation of having your home be vacant or know someone in this situation, consider this…

Many of the companies that will write a policy on a vacant home will also offer a monthly payment plan to pay the premium. This will lessen the impact of having to come out of pocket all at once for the higher premium. When the home sells, the policy is then cancelled and you’re only out one month of premium. If your home becomes occupied by a tenant, or you decide to move in, the policy is then converted back to a regular homeowners policy at the cheaper premium.

If you’re thinking of leaving your house vacant and moving to another property (or you know someone who is), contact an insurance company right away to be sure you’re covered. You may even want to send a link to this blog to anyone you know with a vacant home.

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4 Responses to “Vacant Homes: Avoid a Financial Disaster”

  1. Capri Wilbanks Says:

    Great article, Glen! The value of quality home insurance often doesn’t become clear until you really need it.

  2. Terry Young Says:

    Everyone should print this and give it to their Seller’s – – FYI!!!

  3. Anna Ighani Says:

    Thank you Glen for a very informative article!

    Also, I have heard if a home is left vacant without the insurance being advised and the insurance company does an inspection, they can cancel the homeower’s insurance too. Yikes!

  4. Glen Curry Says:

    That is correct. Once the insurance company finds out the risk is vacant, immediate cancellation notice is sent out. The policy will be cancelled in 30 days. There is a question on all insurance applications asking if you have been cancelled or non-renewed for any reason in the past 3 years. The policyholder must now answer that question “yes”, and will not be able to get a price from a preferred carrier for a preferred risk.

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