WEDNESDAY, MARCH 23, 2016
Insuring Your Second Home In the last couple of years, the sale of vacation homes has boomed. If you’re considering buying a second home, please contact us before you do, as second homes have special insurance considerations. Location, Location, Location As in real estate, in homeowners insurance, location matters. Your vacation home’s location might put it at greater risk of windstorm, flood or fire damage than your primary residence. Most homeowners policies cover damage resulting from windstorm. However, in some states, including Texas and Florida, insurers can exclude windstorm coverage for properties in high-risk coastal areas. Mortgage lenders require windstorm coverage, so you might have to buy windstorm coverage separately. You can buy windstorm coverage through a high-risk insurance pool; please contact us for more information.
All homeowners policies exclude coverage for flood. If your lender determines your vacation home is located in a Special Flood Hazard Area (SFHA), or 100-year floodplain, it will require you to buy flood coverage. If you disagree with the lender’s assessment of risk, you can apply for a Letter of Determination Review (LODR), a Letter of Map Amendment (LOMA), or a Letter of Map Revision Based on Fill (LOMR-F) from the Federal Emergency Management Agency, which administers the National Flood Insurance Program. Relative fire risk depends on the property’s location and construction, along with the area’s topography, weather and fuels type. Your homeowners insurer will consider the type and level of fire protection available in your area and available water supplies when calculating your premium. If your local fire department has access to a stream, lake or sometimes even swimming pools, you can qualify for a price break of up to 25 percent. Installing home sprinklers can also earn you a discount on premiums. Other measures to help mitigate fire risk include maintaining a “defensible zone” around structures, removing dry brush and ensuring access for emergency vehicles. For more suggestions, see the National Fire Protection Association’s website, www.nfpa.org. More Discounts on Insurance Regardless of where your second home is located, it will cost more to insure than a primary residence. Why? Frequent vacancies make a second home more vulnerable to damage by vandalism and theft. Buying a second home in a gated community can qualify you for a discount of 10 percent with many insurers. Installing an alarm system connected to a central monitoring station can reduce your premiums by up to 20 percent. A basic system that detects fire, smoke and break-ins costs approximately $300-$500, with monthly charges of $25-$50 for monitoring.
You can also get discounts by insuring your second home with the same insurer that insures your primary residence. Most discounts range from 5 to 10 percent. Some insurers offer package policies for homeowners, which cover multiple homes and cars, a boat and umbrella liability in one document. A package policy can also help eliminate gaps between your various coverages as well. Rental Considerations Many owners of vacation properties rent them out part-time. If you plan to do this, make sure your rental income outweighs the additional risk you take. Nobody takes care of a house as well as its owner, so insurers usually charge more—up to 20 percent—to cover second homes that are rented out. The more people in and out, the greater your chances of someone forgetting to turn off a faucet, lock a door or turn off a gas fireplace starter. An occupied house has a lower risk of burglary, and someone is more likely to notice damage before it gets worse. For this reason, some insurers will charge less if the house is rented out more frequently. However, some homeowners policies will not cover damage caused by renters or their guests.
If you plan to rent out your vacation home part-time, check your policy to see whether it provides this coverage. Most rental homes are rented furnished. However, if you plan to rent your second home empty, tell your insurer—you shouldn’t have to pay for contents coverage on an empty house. Renting out a house increases your liability exposures. Individuals with second homes have enough assets to make an umbrella liability policy a good investment in peace of mind. If you do not already have an umbrella liability policy, please contact us for more information. If you plan to rent out a second home long-term, a landlord’s policy might provide better coverage than a homeowners policy. Landlord policies cover damage to your rental property, and protect you from liability claims filed by your tenants or their guests. Protecting your investment in a second home with the right insurance and risk management plan can help make it a peaceful haven rather than a stressful obligation. Please contact us for more information.
Posted 3:10 PM