If you've done any shopping for vacation home or second home insurance, you already know that it will cost you more than insurance on your primary residence. There are many reasons for this, including the fact that you're simply not there as often, and vacant houses represent higher risks. In recent years, insurance companies that have seen staggering losses due to hurricanes and flooding have also been making it extremely difficult for coastal property owners to obtain insurance at all, but there are several ways you can make your vacation property a better risk, and mitigate the expense of insurance coverage. Here are some of them:
Even though the real estate agent handling the purchase of your second home will likely recommend a local insurance agent, you'll usually get better pricing if you use the same company that insures your main residence. In most cases, this means a savings of 5 to 10 percent. If you own multiple properties, ask your insurer if they offer "package policies," which came out a few years ago, and are designed to handle two or three houses, more than one car, a boat, and some sort of umbrella liability coverage, all in the same policy. Such a package will save you even more.
Speaking of umbrella policies, if you didn't have one before you bought your vacation home, it's likely you should consider one now. These policies extend the liability limits on your existing homeowners, auto, and boat policies (which are typically about $300,000) for a fairly reasonable price. Insurance professionals recommend a minimum of $1 million of umbrella liability coverage for people who own two homes, and in most places, that will cost you about $300 (as of 2007 - but be aware that insurance premiums are based on a number of factors). If you own rental properties, umbrella policies are an essential part of your financial protection - all you need is for a tenant or his guest to break an arm or leg diving into the pool, and you're the one who could be sued.
Good Fences Make Good Neighbors - and Lower Insurance Premiums
When shopping for a vacation property, you're likely not thinking about the cost of insurance, but here's an interesting tidbit: if your home is located in a gated community, you may qualify for a 10% discount on insurance. If your second home is in a rural locale, documentation that the local fire department can easily access a significant water source (such as a lake or stream) can get you a discount of up to 25%. Hiring a caretaker will not save you anything on insurance, but in high-risk areas (anywhere coastal, for example), a full-time presence on your property will make you a better risk, and make insurers more likely to take you on as a client.
Sound the Alarm
Even if you can't justify hiring a caretaker or property manager, you can knock about 20% off your insurance bill by installing a monitored central alarm system that detects both burglaries and fires. Basic systems can be installed for as little as $400, depending on the number of zones and sensors in your home, and service is usually around $100/year.
Many vacation homes, especially those in resort communities, are actually condominiums. From an insurance standpoint, this saves you money - sort of. You're not paying directly for homeowners insurance because that's rolled into the condo association fees, but you should be aware that those fees, and the blanket insurance they pay for, only cover the structure of the building ("down to the thickness of the paint on the walls" is the typical description of what's covered). For the contents of your condo, including any improvements like a whirlpool bathtub, hardwood floors, or a granite kitchen, you'll need your own contents and liability coverage.
Many second-homeowners choose to rent out their vacation homes when they're not actually using them. There's nothing wrong with this, but it will increase your insurance premiums by about 20% because insurance companies feel that having strangers in residence makes you a higher risk, however, there are some companies (Chubb is one) that actually charge you lower premiums if you have a constant stream of tenants because an occupied house is less likely to burn to the ground, or be at risk for burglary.
If you do choose to rent out your vacation home, be aware that while the norm is to rent such properties fully furnished, you can save on contents insurance coverage by renting it empty. If your tenant brings belongings to your empty second home, he or she won't be able to claim any losses under your policy, though a portion of his or her own homeowners insurance (about 10%) will follow them to your property. Knowing this, it's a good idea to require long-term renters to carry
renters' insurance, and provide proof of coverage.
The reality is that insuring a second home is always going to cost more than the insurance for your primary residence, but by using common sense, you can reduce how much you must pay.