This guest post is contributed by Real Estate Unlimited, a boutique real estate agency serving clients in the Los Angeles area.
Insuring your primary residence is a standard part of the home buying process – but insuring a second home is less straightforward. Vacation homes can be costly to insure, and many insurance providers restrict policies if homes are routinely rented out. Even when owners do find insurance, they may need to pay extra for special problems like extended liability or extreme weather patterns.
Are you thinking about buying a second home, either as a vacation home or as a vacation rental investment? In this post, we’ll give you a simple guide to finding insurance you can live with – and rely on.
Planning to Purchase
Ideally, you want to start thinking seriously about securing an insurance policy before you close on a property. Insurance can be expensive, occasionally enough to offset the promised savings of vacation home ownership, so it’s important to account for it in your budget. Your insurance policy may also control the type and frequency of rentals you can offer, which will affect the return on your investment. Another major factor in home insurance coverage – weather damage – is heavily influenced by geography, and it may determine your choice of location.
Researching Insurance Carriers
The best place to start is with your primary insurance carrier. The application process will be more streamlined, and they may even offer you a more favorable rate. If your residential insurance company won’t cover a vacation home, look for carriers in the area where your second home is located. Your real estate agency is a good source for referrals, since they’ll have local contacts and will probably have worked with clients with a similar financial and real-estate profile. You’ll need to answer questions about how your second home will be used – especially if you’re planning to turn it into a vacation rental property – how often it will be used, and who will be responsible for managing the property.
Special Coverage Issues
Unfortunately, many of the qualities that make any given vacation rental valuable – oceanfront seaside properties, tranquil rural retreats – can make insurance coverage pricey. For example, a home in a centrally-located gated community will be much easier to insure for fire than a home far away from town. Flash floods and wildfires will also increase your premiums in any area where they are common – and it pays to research catastrophic weather patterns ahead of a second home purchase. Some risks special to vacation homes can be controlled – for example, a fence and a locked gate to keep neighborhood kids from wandering onto your property will resolve “attractive nuisance” issues that may prevent you from obtaining liability coverage. Some typical vacation home features are simply an added expense – swimming pools cost extra both as an architectural feature and as a potential liability issue.
Part-Time vs. Primary
Many people who own second homes assume that part-time occupancy means lower insurance costs, but this isn’t always the case. An empty home is a vulnerable house, at increased risk for break-ins. When you aren’t present, you’ll also have a harder time monitoring the property. A broken skylight could become water damage and mold cleanup by the time you’re aware of any problem. These risks are manageable – after all, vacation homes are a viable insurance market – but it’s a good idea to be aware of these factors when deciding how much coverage you want to buy. Another way to mitigate risk is to choose a more hands-on property management arrangement, so that someone will always be nearby in case of a problem.
Calculating Liability Coverage
If you’re planning to rent out your second home – even on a very part-time or occasional basis – we strongly recommend that you consider liability insurance. It protects your assets from a devastating lawsuit in the event of an accident. Part-time residences are also unoccupied for most of the year, which can create liability concerns that are distinct from the ones you might face in your own home. Liability insurance is relatively cheap, starting at just a few hundred dollars per year for substantial coverage.
Tenant Insurance
Most types of second-home insurance coverage match primary-residence insurance – for example, coverage for earthquake or fire damage. One big distinction, and one we strongly recommend you consider, is tenant insurance. Tenant insurance covers you for damages specifically related to rental usage – and it’s handy to have when you’re entrusting your beloved seaside cottage to a crew of college students on spring break. You can also save on premium costs by requiring all tenants to carry renters insurance with a minimal coverage benchmark.
Second home insurance does include some special considerations, but most of the process of comparing and securing coverage is the same one you’re familiar with as a homeowner. With a little planning and research, you’ll have no trouble securing a policy that will protect you and your new property.
About the Author: Real Estate Unlimited is a boutique real estate agency serving clients in the Los Angeles area, including the historic neighborhoods of Echo Park, Eagle Rock, Los Feliz, and Silverlake. Our digital marketing expertise and strong local connections combine to form an outstanding level of service for all our clients.