Buying a second home to rent to vacationers or lease long-term is an investment that appeals to many Americans. Before you sign your real estate contract, however, you should learn about how to insure your vacation home to protect your investment properly.
Vacation Home Insurance: Different from Ordinary Home Insurance
Insuring a second home is different from insuring your primary residence. A vacation home is a major investment for most homeowners, and the right vacation home insurance policy protects that investment.
You may wonder if your existing homeowner’s policy covers a second home. In the vast majority of cases, it doesn’t. Vacation home policies are written especially for the unique characteristics of these homes, and the cost reflects those differences.
Vacation Home Insurance Generally Costs More
You may be surprised to find that the insurance policy on your second home is more expensive than the policy on your primary residence. Why would it cost more to insure an often smaller home that is only used during certain parts of the year?
The very fact that a second home can spend long stretches of time without being occupied is part of why insuring it costs more. Vacant homes are more prone to theft and vandalism. Additionally, problems like a burst pipe or roof damage may not be discovered until well after the fact.
If you plan to rent your vacation home to vacationers or lease it long-term, you’ll have fewer worries about it remaining unoccupied. However, you will need insurance that protects your interests as a landlord.
Location can also be a factor in driving up the cost of vacation home insurance. A remote cabin, for example, may be far away from fire services. And just as the Zip Code of your primary home influences the cost of your homeowner’s policy, the Zip Code of a vacation home does the same for vacation home insurance policies.
Finally, many vacation homes are located where Mother Nature is active. A beach house may be prone to hurricane damage, while a lake house may have a higher flood damage risk. These factors result in higher insurance premiums.
You Can Take Steps to Keep Costs Down
Speak with an insurance agent about ways to bring down the cost of insuring a second home. One popular way to bring the cost down is to “bundle” the vacation home insurance policy with one or more insurance policies by the same provider.
In some cases, you can reduce premiums by installing an electronic security system. Many of today’s systems allow you to monitor your second home from your smartphone.
Installing “smart home” technology can work in your favor as well. When you can, for example, adjust the heating thermostat, you can help prevent problems like frozen pipes. Your insurance agent can advise you on other specific ways you may be able to reduce the cost of insuring your vacation home.
Understanding What Is Not Covered
While it’s essential that you understand what your vacation home insurance policy covers, it is equally important to understand what it does not cover. Don’t risk being surprised by a non-covered event at your second home.
For example, flood damage is not covered by vacation home insurance. However, you can purchase flood insurance, which is wise for second homes located in low-lying areas or close to oceans or lakes.
As another example, suppose you invite friends to visit you at your second home, and one of them has an expensive watch stolen while visiting. Your policy probably won’t cover it. The good news is that there are short-term riders you can purchase inexpensively to cover these sorts of events.
Finally, if you want to recoup some of your investment by renting your second home to vacationers, or to a long-term tenant, your vacation home insurance is not sufficient to protect you or your vacation home. For these situations, you will need specific types of insurance.
Don’t let these scenarios prevent you from buying and enjoying a second home. Insurance agents know exactly how to help you protect your financial interests, with policies tailored to your unique needs.
