Should Vacant Properties Be Insured?
Every year, for a multitude of different reasons, many properties become vacant or unoccupied for a period of time. Often because the owners have moved and the house is for sale, or maybe the owner has passed away and the estate is being settled, or maybe it’s under fairly significant renovation.
Regardless of the reason, most of those properties still need insurance (or at least it would be a good idea to have). Vacant properties are more difficult to insure than a standard owner occupied or tenant occupied property. Like before, there are lots of reasons for this. Some of the most obvious are vacant properties are targets for theft, vandalism, etc. Also, what would normally be a small issue if noticed and addressed quickly, can turn into massive (meaning expensive) problem when not noticed and/or addressed promptly as would be in an owner occupied house.
What’s worse, most homeowners insurance policies actually have an exclusion for ANY LOSS that happens 60 days after the property use or occupancy has changed. (see bottom for the full wording**) This is a HUGE deal. It means, if move out and put your house on the market and your house burns to the ground on the 61st day after you moved out, there is no coverage provided by that policy. None. Nada. Zip. Zilch. (similarly, there is no coverage provided immediately upon change in ownership – yikes!)
Fortunately, there are solutions for coverage on these properties.
Many companies offer a policy that is specifically set up to cover vacant houses. Its not great, since it’s limited in what is covered, and excludes some things that do happen, but it’s better than nothing at all.
Most policies for vacant houses only cover the following perils: Fire, Lightning, Internal Explosion (not including bursting caused by water, i.e. pipe bursting), Windstorm or Hail, Smoke, Aircraft or Vehicles, Riot or Civil Commotion, Vandalism – glass excluded, Volcanic Eruption.
Some examples of losses that are NOT covered by the vacant policy would be (but are not limited to): Falling Objects, weight of ice/snow/sleet, mold, accidental discharge or overflow of water or steam, sudden and accidental tearing apart, cracking, burning or bulging (like from an A/C system, water heater, pipe, etc),freezing. Some of those polices allow you to include Vandalism or Malicious Mischief, which you certainly should include if it’s available.
Additionally, those policies are generally more expensive (often 2x a standard policy) and more limited when there is a covered loss because most only pay for the ‘actual cash value’ of the damages (meaning, they take a deduction for depreciation from the settlement). Again, not ideal, but for sure better than a policy that excludes everything.
As always, please dont rely solely on this general guidance for making a decision on your coverages. You should consult your agent or carrier and get specific guidance on your specific situation before making a decision. If you’d like help getting an estimate on a vacant homeowners policy, please contact our office or complete the questionnaire below and we will be in touch!
**Here is an example of the language that outlines the timeline for the full exclusion of coverage for change in occupancy (vacancy) or change in ownership. These were taken from an actual policy.
Change in Occupancy or Usage of “Residence Premises”
If we have not been notified by you within (60) days of any change of ownership, title, use or owner occupancy of the “residence premises,” including:
a. The rental of the “residence premises”;
b. Vacancy or abandonment of the “residence premises”;
c. The use of the “residence premises” for any purpose other than a residential unit;
any loss occurring from the 61st day after such change to the date proper notice is given will be excluded from coverage. If this occurs, premium would be refunded for the period during which the coverage is suspended.
Change in Title of the “Residence Premises”
If a change in title/deed negates the insurable interest, there will not be coverage from the date of the loss of insurable interest and a refund of all unearned premium will be returned to the insured listed on the declaration page.
For more information about navigating insurance on a home being moved in or out of an estate or going through probate, read: Insurance for transition of properties in & out of estates or probate.
Insurance For Properties In Estates Or Probates
When the last owner of a property dies, the property becomes part of their estate and would be distributed based on the terms of their will or as directed by the State they live in if they die without a will. That’s about the extent of my knowledge when it comes to Wills, Estates, and Probate (and it may not even be technically correct – hopefully it’s at least close), but what we do know is how to handle the insurance so there is coverage throughout the process AND so it can be done as efficiently as possible.
When a homeowner dies, the insurance policy will generally continue to be valid for a period of time, (30-60 days generally speaking) without any action necessary. If something were to happen, the deceased would be paid, and the estate would receive the money and would be responsible for dealing with the property.
Importantly, most homeowners policies have two MAJOR exclusions that come into play during this process.
When the use or occupancy of the property changes, after 60 days the policy will exclude ANY loss that happens. They will refund your premium in the event of a claims, since they wouldn’t be providing coverage, but they wont pay for any damages.
As a result, it’s VERY important to communicate with your insurance agent or company when the occupancy of your property changes, so they can give you guidance and help write you a new policy that fits your new situation.
When the ownership of a property changes, the existing policy no longer provides ANY coverage to the new owner or the prior owner. Even if the property is being transferred from a family member’s estate and into your name, and you keep the existing policy in place, AND even if you NOTIFY the insurance company of the transfer…. there is no coverage from that policy. The prior policy, even if it is in force, is in force to benefit the prior owner - not you. And the prior owner no longer has an insurable interest in the property (they don’t own it anymore) so there is no coverage for them either.
As a result, it’s VERY important to make sure you coordinate with your insurance agent or company (and your attorney) to make sure you have a new policy in place, PRIOR TO you taking legal ownership of the property. This is because 1) you want to make sure you have coverage, but 2) also because you are at risk of an uncovered loss AND now have a lapse in coverage which makes getting insurance more difficult. Insurance companies do not like lapses in coverage because a lapse in coverage is directly correlated to an increase in claims.
Remember, please do not rely solely on this general guidance for making an insurance decision. You should consult your agent, carrier, and/or attorney and get specific guidance on your specific situation before making a decision.
If you’re in the process of inheriting a property or otherwise transferring title of a property, make sure you communicate with your insurance agent to get the correct coverage set up, with the appropriate timing, to help make sure you’re best taken care of. If you’d like help getting an estimate on a homeowners policy, please contact our office or complete the appropriate questionnaire below and we will be in touch!