Getting House Insurance is One of the biggest challenges that face those who want to buy and sell for profit, foreclosed homes is getting them insured while the investor/buyer is fixing it up to re-sell or flip.
My wife’s Uncle was an Broker/agent with a number of companies that he represented, but after my 5 or 6th home when I would pay for a year’s policy and then cancel it after about 6 months, started getting ugly with me, making comments like “I hope this one doesn’t burn down!” and such, so I dropped him and went with another agent. Now in the past few years, it has been tougher and tougher to get a policy even on rental properties.
Unfortunately, a common clause in home policies says that coverage is void on vacant homes – and even if you are short-selling and have already moves you probably won’t realize your home coverage has vanished until it’s too late. According to the Insurance Information Institute (III), most insurers discontinue coverage on a home if it’s unoccupied for over 30 days. Some may allow up to 60 days.What’s the BIG deal? Well, these companies label vacant homes as high risk. Unoccupied homes are more likely to become victims of theft, 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, spokesperson for the Insurance Information Institute. “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.” This quote is one reason why I shut off the water at the meter or well, or even turn off power when I am not there and working on the property.
If you want to cover your vacant home against the same perils that your standard policy would cover, you’ll need to purchase “vacancy insurance.” This would include theft, burglary and vandalism. However, not all insurance companies sell it.
Foremost Insurance, which specializes in selling vacancy coverage, offers a policy that will cover you for fire, wind, and hail in addition to “vandalism and malicious mischief.” Upon request, the policy could also include liability coverage in the event someone is injured on your property. All policies vary by state.
Foremost often 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 cancelled any time.
But vacancy insurance can be expensive – expect much higher than premiums than for a standard policy. Loretta Worters, spokesperson for III, says that you could pay 50 or 60 percent more for a policy on an unoccupied home as compared to a regular homeowners policy. However, you may be able to reduce your premium slightly by arranging for someone to check on your home regularly, she adds. The policy price will also depend on whether a home has a central alarm system, deadbolt locks and/or smoke detectors. Insurers also may assess whether a policyholder has winterized the home to protect plumbing fixtures from freezing temperatures, and how long the house will be vacant, she says.
Saving money by renting out
When I dumped my wife’s uncle, I went to an old school friend and asked his advice. He told me that if I put a “FOR RENT” sign out in front, the company he represented might give me a better rate, in lieu of a “prospective” tenant.
This though means that you will have to buy landlord policy that generally costs about 25 percent more than a standard home policy because landlords need more coverage than a typical homeowner, according to III. But that’s still much less expensive than buying a vacancy policy – and maybe you will turn it into a rental property
How will your insurer know?
Most of these companies do not need to spy on you to determine if your home has been left 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 home for a few weeks), that will appear in a police report. You may tell your Agent/company that you’ve only been away for 29 days (to allude the 30 day vacancy deadline), but if police question your neighbors who say you’ve been gone for months, you may find your claim denied – and policy terminated. It’s always best to be honest with your insurance company.
All in all, as Smoky Robinson used to sing, “You’d better Shop Around!”