Vol. XV, No. 5
May 2007
Vacation Home Insurance
Summary
With summertime just ahead, many NEA members will be retreating to their vacation homes for a well-deserved break. Just like your primary residence, your vacation home needs to have adequate protection. Unlike your primary residence, vacation homes require a different type of property insurance. |
Introduction
Whether you own a vacation home at the beach or by a lake, you will want to protect your home away from home. Frequently, your vacation home can be insured by adding coverage to your homeowners policy. If not, you'll need a separate policy.
One of the factors that can affect the coverage on your vacation home is the amount of use it gets. Think about it. You probably do not live in your vacation home a great part of the year. This means there is a greater chance of something going wrong. No one is around to prevent or report events like lightning striking the roof or someone breaking into the house. Since most homeowners policies require occupancy as a condition of insurance, the fact that you visit infrequently may preclude you from obtaining full homeowners coverage.
Fire Insurance Policies
Comprehensive primary homeowners insurance policies require the homeowner to reside in the home for at least six months plus one day out of the year. Any secondary home requires a “fire” insurance policy. A distinguishing feature between the comprehensive primary home insurance policy and a fire policy is that fire policies do not include liability and medical payments coverage. Liability coverage can be extended from the comprehensive policy or provided separately either through an endorsement or a personal liability/umbrella policy.
There are three general dwelling property insurance policies for secondary homes (based on policies developed by the Insurance Services Office):
- DP 00 01: Dwelling Property 1 – Basic Form. Coverage is provided for fire, lightning, or internal explosion, with no coverage for personal property or additional living expenses.
- DP 00 02: Dwelling Property 2 – Broad Form. Identical to the Basic Form except it provides additional living expense coverage.
- DP 00 03: Dwelling Property 3 – Special Form. Similar to a comprehensive homeowners insurance policy, except that there is no theft coverage for personal property or liability/medical payments coverage.
The property owner can add additional coverages through the use of an endorsement to each of these policies.
Some insurance companies will write a comprehensive homeowners insurance policy for secondary homes if it fits unique needs; normally, the premium will be higher.
Other Insurance Coverage Issues
Here are several tips on how to trim your vacation home insurance premium and how to make sure you have enough coverage:
- Alarm Systems: A central alarm system that detects both fire and burglaries can quickly cut premiums by 20 percent, some insurance salespeople say. According to home security company ADT, a basic system costs around $300 to install, depending on the number of zones and sensors in the system. Expect to pay $400 and up for service each year.
- A Watchful Eye: Owning a home in a gated community warrants a 10 percent discount. For homes in rural areas, proof that the local fire department has access to a stream, lake or other water source can mean a break of 25 percent. And while you won’t get a discount for hiring a caretaker, having one will convince some insurance companies that you’re worth the risk when, otherwise, they’d turn down your business.
- Combine and Conquer: Your real estate broker may suggest that you call their local agent for the best rates. But you’re actually better off revisiting the agent who sold you coverage on your primary home. By insuring your second home with the same company, you should be able to save 5 to 10 percent. And if you can get one of the insurance industry’s new “package policies,” which can handle two or three homes, a couple of cars, umbrella liability coverage and even a boat in a single policy, you’ll do even better.
- Condo Issues: If you’re buying a condo instead of a free-standing home, the condo association will provide coverage for the structure. That’s part of your monthly maintenance fee. But you’re responsible for fixtures, appliances in the condo, and typically any kind of improvement, like a gourmet kitchen or whirlpool bath, as well as your own contents and liability coverage.
- Umbrella Policies: If you didn’t have an umbrella liability policy before you bought your second home, you have enough assets to warrant one now. An umbrella policy will extend the liability limits (typically $300,000) on your homeowners, auto and even boat policies for a reasonable sum. Insurance experts recommend a minimum of $1 million in umbrella liability coverage for people who own two homes (average cost of $300 per year).
For landlords, umbrella policies are especially crucial. If one of your tenant’s clumsy friends breaks an arm diving into your pool, his lawyer may soon be knocking on your door.
- Insurance and Landlording: If you rent out your vacation home, you can expect to pay 20 percent over the cost of ordinary second-home insurance. Since you’ll be there even less than most second homeowners, insurers believe your house is at even greater risk. Besides, they argue, no one takes care of a property as well as its owner. If you’re planning to rent it out a lot, say so. Though it sounds contradictory, some insurers such as Chubb will charge you less if it looks like there will usually be tenants around. An occupied house is less likely to be burglarized or burn to the ground.
Most second homeowners rent their properties furnished, but if you rent empty, make sure to let your insurer know (you’ll get a break on contents coverage). If your tenant’s belongings are not covered, the tenant can’t claim anything under your policy. (Although 10 percent of the contents insurance from the tenant’s primary residence will follow to a rental, it’s not likely to be enough in a disaster. You might require longer-term tenants to carry a separate renter’s insurance policy).
A good insurance agent will help you evaluate the kind of coverage that’s best for your particular situation.
NEA MEMBER BENEFITS
NEA members can obtain vacation home insurance coverage from either the NEA Members Auto & Home Insurance Program, underwritten by California Casualty Insurance Company, or the NEA Homeowners Program, underwritten by Horace Mann Insurance Company.
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