Vacant property insurance
Vacant property insurance is a real thing. In fact, it used to be called the “vacant land” policy and generally covered buildings as well. But now insurers are changing this term to vacancy only, meaning that you can only buy liability coverage for vacant properties. A lot of these policies still cover structures, but they also provide discounts for items like spring breakers or mobile homes that are not typically covered under a standard dwelling policy. Because you’re not required to maintain a property while it's vacant, these policies tend to be cheaper than building an addition onto your home before moving in.
This article was written by James D. Langton and published in the February 2010 issue of United States Insurance News.
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Vacant property insurance is a real thing. In fact, it used to be called the "vacant land" policy and generally covered buildings as well. But now insurers are changing this term to vacancy only, meaning that you can only buy liability coverage for vacant properties. A lot of these policies still cover structures, but they also provide discounts for items like spring breakers or mobile homes that are not typically covered under a standard dwelling policy. Because you're not required to maintain a property while it's vacant, these policies tend to be cheaper than building an addition onto your home before moving in.
Typically, you don't need liability coverage on the dwelling portion of a vacant property policy. In a standard dwelling policy, your liability is covered for someone injured on the premises. A vacant property policy adds coverage for injury or damage to another person's property if they slip and fall into the swimming pool or rummage through the house and get hurt while inside. It also covers vandalism or theft of items left on the premises by vandals, thieves or other squatters.
Most policies cover two kinds of damages: direct and consequential. Direct damage refers to damage to the property itself, such as wear and tear from weather or rodents. Consequential damage is considered damage that occurs from your negligence, such as vandalism or fire. Some policies raise the deductible if there is any possibility of causing consequential damages. Others have separate deductibles for direct and consequential damages.
There are different levels of coverage that you can choose from with most vacant property policies. The amount of coverage corresponds to the value of your home, plus any improvements on the property if any are present at the time you cancel your policy or surrender it. The higher the value of your home, the more coverage you get.
Property values and rates vary by state, and insurance companies follow the rate guidelines set forth by the National Association of Insurance Commissioners (NAIC). If you're not sure where your home is located, ask your insurer about available rates in your area.
Some property insurance policies require that you disclose all known existing buildings on the property. If you discover a building on your vacant lot during an inspection when renewing a policy, it may be too late to add this structure to the policy cost. Some insurers won’t allow you to add a structure after 30 days of receiving notice. Others will require you to have an engineer's report completed before they'll issue a policy.
How Much Insurance Should I Buy?
The best way to determine how much property coverage is necessary is to estimate the value of your home and then compare this dollar amount with the cost of the policy. If the difference is more than 50 percent, it's likely that your house comes in under insured, and you may need additional coverage. If you don't have inventory for previous values or aren't sure about current market value, ask an appraiser for a ballpark estimate of your home value. This will help you determine the amount of coverage you need.
Another way to determine the value of your home? If it's more than you need, expand your coverage to protect the remainder of your property. For instance, if you have a vacant lot but you don't want to build on it, buy a permanent building policy that covers your building or business equipment. And if you only have liability insurance for your house and aren’t sure whether to remodel, make an estimate based on previous spending and add liability coverage for the entire structure in case of damage from a fire or robbery.
The type of vacant property you own will also affect your insurance premiums. Residential coverage is preferred by most insurers, but some policies allow you to buy commercial or industrial coverage as well. You can purchase extra liability for visitors and employees of commercial properties or to cover guest workers in residential properties.
Some policies require that you maintain the property until a policy is issued, while others are flexible and allow you to cancel up to 90 days prior to the date that coverage would normally terminate. This flexibility can save you money on vacant property insurance, because it's easier for a delinquent customer to pay than it is for an uninsured structure. If possible, keep up with mortgage payments so that you don’t have outstanding balances when the policy expires.
If you're switching insurers, you may have to comply with the new company's policy. The new policy may need to be issued at a certain time or may not be issue until your existing policy has expired. Talk with your agent or broker about the requirements for issuing a policy. Some policies can be issued immediately, while others must wait up to 30 days before they'll allow coverage to begin.
What Else Might I Need?
If you’re planning on renting out your property for long-term leasing, some insurers will require that you add "loss of rental income" protection as part of the insurance package for your vacant property. This coverage will help you recover some or all of the monthly rental income from another policyholder if your property is damaged. Appraisers can help determine how much to include in the insurance premium and if other deductions are necessary.
You might also consider adding a personal liability insurance policy for yourself. This additional coverage will protect you from legal costs for defending against a lawsuit if you injure someone with your property. To protect yourself, make sure that you have proper workers' compensation coverage as well, which typically requires physical exams and certification of injury each year. You'll want to look into any special use policies as well, such as earthquake damage or flood damage that may be applicable to your vacant property.
Conclusion
It's important to be prepared for the unexpected when it comes to vacant property insurance. You need to determine how much coverage you need, and then compare premium costs with the value of your home. You should also add safety precautions such as video cameras, locks and security lighting and have your home inspected before you rent it out.
If you own commercial property or a business that requires extra insurance coverage, ask an agent about the cost of commercial insurance, find out about other potential policy features such as loss of rental income and personal liability insurance coverage for yourself and your employees, and make sure that you check with your insurer prior to renting out any vacant property to minimize the possibility of additional risks.