Homeowners Insurance for a Second Home
The insurance products that are associated with a second home are no different from the insurance products that are associated with a primary residence. But every house is different, so no two homeowners policies are exactly the same. For example, your vacation home might need flood insurance while your primary residence does not, depending on the location.
The point is, you can work with a licensed insurance agent to customize your second-home insurance to meet your specific needs and budget. Buying a second home as a long-term rental property? Buying a second home as twice-a-year vacation spot? Read on for more information about purchasing a second-home insurance policy.
The Basics of Any Homeowners Insurance Policy
In order to insure your second home, you will need to purchase a separate, stand-alone homeowners insurance policy; that is, your second home will most likely not be covered in any way by your primary residence's insurance. If you are using a mortgage lender to acquire your second home, that lender will no doubt require you to purchase a separate home insurance policy.
A typical homeowners policy comprises a range of insurance products that cover any domicile, whether that domicile is a primary or secondary residence. In other words, there is no such thing as "vacation home insurance" per se.
You should buy enough dwelling insurance to cover the rebuilding of your second home if it has been destroyed. Dwelling insurance will protect the structure of your second home from the following events:
- Fire and smoke
- Windstorm, lightning or hail
- Damage caused by vandalism, criminal mischief, riot or civil commotion
- Damage caused by vehicles or aircraft
- Volcanic eruption
- Falling objects
- Damage caused by the weight of ice, snow or sleet
- Accidental discharge or overflow of water or steam from within a plumbing, heating or air-conditioning system or from an automatic fire-protective sprinkler system or household appliance
- Sudden and accidental damage from a built-in system
Your second home is a big investment, so you need home insurance to protect it, whether that second home is a vacation home or a rental property. You can customize an insurance policy to meet your particular needs and budget, whether you're buying vacation home insurance for your vacation home or a policy in which water damage is a covered loss.
Personal Property Insurance
This insurance type underwrites the loss of any personal belongings in your second home, including your furniture, clothing, electronic equipment, hiking and skiing gear and so on. Make an inventory of your second home's personal property; composed of receipts, serial numbers and any other identifying information, an inventory makes filing a claim much easier. Note, however, that this coverage does not extend to the property of anyone who might be renting your vacation home.
Liability coverage protects you from lawsuits due a visitor's or renter's accidental bodily injury or damage to their property. This policy could include medical payments coverage, which would pay for the affected party's medical bills.
Additional Living Expenses
If your house were to become uninhabitable due to a disaster, this insurance, also known as "loss of use" coverage, would cover your hotel, food and other, miscellaneous expenses. Of course, since you already have your primary home, you probably won't need this insurance for your second home.
Ask your insurance company about a personal umbrella policy, which will provide additional coverage help to pay for any costs over and above the coverage limits of your homeowners insurance policy. While this insurance coverage may make a dent in your short-term personal finance, it could save money in the long run.
Do You Have Enough Coverage?
You can have your dwelling and personal property insurance for its actual cash value, which pays to replace your second home or possessions minus a deduction for depreciation, or for its replacement cost, which pays to replace the home or possessions without a deduction for depreciation.
The gold standard of a home policy is the guaranteed/extended replacement cost, which pays to rebuild your second home as it was before the disaster, even if it exceeds the policy limit.
In order to get the right coverage, speak with your insurance company representative or compare car insurance rates online with a reliable insurance agent in your area. A trustworthy insurance agent can answer your questions about all the things related to insurance for your second home, including any additional insurance coverage, also called a "paid endorsement," you may need to purchase.
A Few Factors To Consider for a Second Home
According to the Insurance Information Institute, the cost of a second-home policy is affected by the following factors:
Location of Property
When it comes to real estate, it's about location, location, location, right? "With vacation homes the very location that makes a place desirable may also make it more expensive to insure. For instance, a ski house or hunting lodge in a remote or mountainous area could be at greater risk for damage due to wildfire," notes the Insurance Information Institute. "A beach house may be more exposed to wind damage or storm surge from a hurricane. These location-based risks will impact the price of coverage, and in some cases may even incur higher deductibles."
Type of Property
A single-family home, a condo and a townhouse each require a different ensemble of insurance products. As the Insurance Information Institute notes, "A condominium in a ski resort area, for instance, may have lower insurance costs than a stand-alone chalet. This is because a homeowners association maintains the [condominium] and may provide some security." While homeowners insurance for a single-occupancy house or a townhouse covers both the interior and exterior of the dwelling, condominium insurance only covers interior, or "the specific areas of the unit listed in the policy."
Structural Integrity of Property
Your insurance premium will be affected by your second house's age and the type of building materials it comprises. Obviously, the structure of a 1980s brick house that's built on a solid foundation is liable to less risk than a wooden 1940s bungalow with a cracked foundation—the less risk, the lower the cost to insure.
Special Areas of Risk
"Pools and hot tubs add risk to your second home," says the Insurance Information Institute, as will a swing set, a trampoline or a jungle gym. If your vacation residence has these or other special amenities, you may pay a higher insurance premium and should consider adding more liability protection, which will increase insurance costs.
Why Do You Need "Vacation Home" Insurance?
Second homes have a higher risk than primary ones. In fact, insurance for second homes may be twice or even three times higher than the insurance for a primary home in most states. Here's why:
Longer Vacancy Times
A second home is often left unoccupied, and many vacation homes tend to be left empty for a good part of the year. Even if you have a next-door neighbor who does a regular welfare check on the house, an unoccupied house is still associated with greater vulnerability to risk, such as vandalism, leaks and fire.
Increased Threat of Theft
If your second home is left unoccupied for months at a time, the risk of theft increases. Furthermore, your second home is more vulnerable to theft when you rent out the property.
Environmental Dangers to Your Vacation Home
If you second home is a vacation home that sits in a valley, on a mountain, or near a lake, river or ocean, it may well be vulnerable to the destructive whims of Mother Nature, including earthquakes, mudflows, landslides and floods. You'll need to purchase a separate policy to protect your second home's structure and your belongings from each of these types of disasters. For example, if your second home is near a body of water, ask your licensed insurance agent about the National Flood Insurance Program.
Short-Term Rental vs. Long-Term Rental
Depending on the rental scenario, your standard homeowners policy may not cover losses incurred while your home is rented out, and you may require a more specialized insurance policy. Whether you plan to rent your second home to a third party, your homeowners insurance costs will likely increase, and you may need to purchase additional coverage. If you find yourself in the position of being a landlord, ask your insurance company about a landlord policy.
Standard homeowners insurance policies do not provide any coverage for business activities conducted in the home. To be properly covered you would need to purchase a business policy, specifically either a hotel or a bed-and-breakfast policy. However, if your home is being used to generate revenue, you may be eligible for some sweet tax breaks.
As mentioned earlier, your homeowners insurance covers your personal belongings, not your tenant's. That's why many landlords have their renters purchase their own personal property insurance before signing a lease.
If you plan to rent out your second home using Zillow, Airbnb, VRBO or a similar service, you should investigate the statutes and zoning laws where the property is located, since some municipalities have begun to prohibit or restrict short-term rentals. If not, your insurance company may allow you to add short-term rental coverage to an existing policy.
A landlord policy offers many benefits, For example, if your rental property should become uninhabitable, a landlord policy will reimburse you for lost income while the property is being repaired or rebuilt.
Tips To Save on Second-Home Insurance Costs
Of course, the best way to get the cheapest second-home insurance is to shop around, comparing home insurance policies and getting quotes. In fact, you should shop around for a better policy even if you already have home insurance coverage. Looking every two or three years at what the market has to offer is a wise thing to do. There are also steps that you can take to help make the cost of insurance more affordable.
Choose a Less Risky Location
For example, a vacation home farther from the beach won't be as susceptible to storm surges.
Bundle Your Policies
If you insure your second home with the same insurer that provides coverage for your primary residence, you may be able to save on both insurance policies. Further, you can snag a discount if your bundle your home and auto insurance.
Look for Other Discounts
Every insurance company will offer discounts to lower customers' premiums.
Install a security system
Smoke detectors and other alarm systems can lower premiums because they lower the risk factors that lead to claims.
SmartFinancial Can Pinpoint Your Perfect Policy
If you're looking to find an insurance policy for your second home or you want to lower your vacation-home insurance cost, SmartFinancial has the expertise and experience to help you find the insurance coverage that fits your needs and budget.
Using smart technology and artificial intelligence, SmartFinancial's licensed insurance agents know all about second-home insurance, vacation-home insurance, liability coverage and what products you need to combat natural disasters. Why pay more than you have to?
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