Vacation and Secondary Home Insurance

Vacation and Secondary Home Insurance

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Anyone purchasing a vacation or second home or condo needs to consider the risks and insurance costs that come with it. Many factors go into pricing home insurance, and the quotes for a secondary home are almost always higher than if the same home was someone’s primary residence. The reason is that having someone inside a home helps protect it against perils and deters burglars.

This guide will help you determine if you have enough insurance coverage for your secondary or vacation home, as they are commonly called.

There are more than 3.6 million homes and condos in the U.S. used only seasonally, according to U.S. Census Bureau data from 2000. That’s about 3.1% of all homes in the country, but more than 10% of all the homes and condos in Maine, New Hampshire and Vermont are seasonal homes. Florida has the highest number of seasonal homes with 484,825.

Cost to insure secondary or vacation homes

To insure a vacation retreat, a homeowner simply purchases an independent home insurance policy for the seasonal residence. The premium will be priced based on the same factors as any other home — the replacement cost value, the deductible you choose and other applicable risks — but it will be higher than if the same home was your primary residence.

Insuring vacation homes is more expensive because most of the time they are uninhabited and at a higher risk for claims to be filed. For example, say a vacation home was to catch fire somehow. If no one is there to call the fire department, the loss could be a catastrophic one — especially if the home is in a remote location. While an extreme example, this helps to illustrate the greater likelihood of filing a home insurance claim.

Every second-home insurance company applies a different surcharge, or increases the cost of the premium a different amount. For example, State Farm applies a 10% increase to policies covering secondary homes, and Nationwide applies a 20% increase. In other words, say the premium to insure a home is $1,000 per year. If that home is a secondary home, and a 20% surcharge was applied, the premium would cost $1,200 per year for the same coverage.

Some companies have different surcharges depending on specific secondary home circumstances. For example, American International Group (AIG) differentiates the risks of secondary homes based on whether they insure your primary residence, if a full-time housekeeper lives in the home, if a caretaker lives on the grounds of the estate or if a maintenance company checks on the home. We’ve broken down the different AIG surcharges in the chart below. A "supported" home is a secondary home insured along with a primary residence. An "unsupported" vacation home is insured by AIG with no policy for a primary home.

AIG secondary home surcharges
Cost of a $1,000 premium post-surcharge
With a full-time caretaker (lives in the home)10%$1,100
With a full-time caretaker (lives on the grounds of the estate)15%$1,150

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Do not make false statements or mislead your carrier into thinking that your secondary home is your primary home. The savings on your insurance is not worth the risk. If you need to file a claim for your vacation home and the provider discovers you lied about its status, your home insurance company would likely deny your claim and either cancel or not renew your policy. It makes no sense to pay for a policy that could deny you coverage based on this reason alone.

Ways to lower your vacation home insurance premium

The luxury of having a vacation home often comes with a correspondingly higher price tag, but there are ways you can save on the home insurance premium. The cost of most improvements to a second home will generally outweigh what you will save on your premium, though they can make your insurance rates less expensive.

For example, policyholders get a discount for a home with a central alarm system, but the savings on your premium is far less than the subscription fee for eligible systems. This doesn’t mean there is no value in installing a central alarm system — especially in a home that is unoccupied most of the time. It'd be a smart defense against the threat of burglary.

Making a vacation home more secure mitigates the risk of something happening to it and reduces the likelihood of the policyholder needing to filing a claim — that is what is most important. Remaining claim-free is vital to keeping the cost of your second-home insurance premium down. For example, if you have been a policyholder with State Farm for less than two years and have one paid claim, your premium will increase 15%. If you have two claims within a three-year period, it will go up 35%.

In addition to the discounts a primary residence would receive, a home insurance policy for a vacation home usually qualifies a policyholder for a bundling discount.

Other coverages you might need to purchase

In addition to a home insurance policy for your secondary residence, you should consider whether you need flood and earthquake insurance coverage for it. Flood and earthquake damage are not covered by standard home insurance policies but might pose a serious risk to your vacation home, depending on where it is located.

For example, say you have a beach house on the east coast of Florida. A storm surge (an abnormal rise in tide) from a hurricane might easily be able to flood and damage your property. Or, your Southern California retreat might be in a high-hazard area for earthquakes.

You should consider this before purchasing a seasonal or vacation home because the price of either of the aforementioned insurance policies can be quite high. In California, the average cost of earthquake coverage is $1.75 per $1,000 of coverage, meaning a $250,000 home would cost $437 per month to cover. Remember, that monthly premium would be in addition to the cost of your standard home insurance policy.

Vacation home rental insurance

What if I want to rent out my vacation home? Renting out your vacation home is a great way to offset the cost of owning one, but you need to make sure you understand the insurance ramifications before doing so. Depending on the frequency and length of stays, you might need to notify your carrier or purchase a separate landlord insurance policy.

For example, if you rent out your vacation home a few weekends each year through a service such as Airbnb, you probably don't even need to let your insurer know. But if you rent your second home for weeks at a time throughout the year, you need to notify your insurer, and there will likely be a surcharge added to the premium of the policy covering the home. If you rent your home for extended periods, especially to a single tenant, you need to consider commercial or landlord insurance.

If you're thinking about renting someone else's vacation home for a short period of time, you probably already have the coverage you need through your existing home or renters insurance policy.

Most companies have "off-premise" coverage for the personal possessions of the policyholder. Check to see if your policy includes this coverage, and make sure you fully understand the details. There is frequently a limit to the amount you can claim — usually 10% of the replacement cost value of the home the policy covers. If you are bringing possessions worth more than that amount, consider adding an endorsement to your policy before your trip.

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