Home Insurance And Your Vacation House – Some Issues To Consider

Not many families can afford to own a second home, so kudos to you if you are one of the lucky ones.  If you are beginning to consider the idea of purchasing a second home, or even if you already own one, then I hope the information in this article will help you identify problem areas with this type of home ownership so that you can take care of them before they bite you with an uncovered claim or an insurance unavailability problem. 

Secondary home ownership can create quite a few unique insurance issues.  These problem areas can sometimes be attributed to the location of the house or how the property may be used.  The way the property is titled can also create insurance problems.  In some areas there is a wide discrepancy between the market value of the home and the replacement value of the home.  The personal property which is kept inside the home can also create insurance confusion that is best solved before there is a loss.   Let’s take a closer look at each of these kinds of issues.

Let’s start with location issues.  Many vacation homes are found at the coast, or in the mountains or near rivers and lakes.  Each of these kinds of places can present geography based insurance issues.  Beach homes of course face huge property risks to wind and flood loss from hurricanes.   Vacation homes located in the mountains may have poor fire protection.  Many mountain homes face the prospect of waiting on a fire truck full of water to climb the mountain to save them as they are burning. Homes located near  rivers or lakes need to be aware of flood zones and understand their flood risks very carefully.  All of these geography risks can mean a huge insurance price tag and might even lead to insurance unavailability at any price.  Carefully review these risks with your agent before you purchase your secondary home.

The way that a vacation property is used must also factor into the insurance equation.  Is the property going to be rented to others?  If so, then a dwelling fire policy might be more appropriate than a homeowners insurance policy to insure this property.  Dwelling fire insurance is generally more restrictive in coverage and often more expensive to buy than homeowners insurance.  But more importantly, buying the correct policy here might mean the difference between being paid and facing a denied claim after a loss.

A more recent insurance problem with vacation homes is caused by the way in which they are titled.  The latest trend is for several families to purchase a property together and own it through an LLC.  At this time, most insurance companies are not willing to write a homeowners policy for an LLC so this structure could limit your marketplace choices and thus force you to pay more for insurance on this secondary home.

Then there is the problem of market value versus the replacement value of the home itself.   Many vacation homes sit on land that is much more valuable than the house itself.  A great example of this is a NC beach house sitting on land that could be valued at more than $2,000,000 per acre.  Imagine that you want to build a $500,000 beach house on a lot that costs $1,000,000 to buy.  Say you need to borrow $1.3 million to do the deal.  The bank might want you to have more than $500,000 insurance since your loan is way above that amount, but the insurance company will not insure the house for more than its replacement value.  These issues will be easier to resolve if you get your insurance agent involved early in the process.

Last of all, consider the personal property left in the vacation home.  Who actually owns it?  Are the renters allowed to use it?  How will you insure it?  Special care should be taken to make sure that the insurance company understands the answers to these questions and that the insurance is set up to handle this situation correctly.

Insuring your vacation home is best done with an independent insurance agent who understands these issues and how to help you through them.  At Clinard Insurance Group, in Winston Salem, NC, we insure hundreds of vacation homes all across NC from the mountains to the sea.  We understand these issues and we have access to the marketplace that you need to make sure that you don’t pay too much for your vacation home insurance.  We can also help you with your auto insurance, your life insurance and even your business insurance.  Just give us a call, toll free, at 877-687-7557 and let us go to work for you today.