Vacant Properties Pose Insurance Risks

California Insurance Commission, Steve Poizner, recently gave a press release on the problem with the increasing number of vacant properties as many homeowners are stuck with hard-sell-homes.   He encouraged homeowners in this situation to review their insurance policies to determine what kind of coverage they have when property is left vacant and what their options are.

 Some frustrated home sellers who must relocate for a new job opportunity, want to downsize or simply want to buy a new place have left homes empty. Vacant or unoccupied homes can leave the homeowner exposed to loss and liability that may not be covered by their insurance.

The Pending Home Sales Index, released on August 3 by the National Association of Realtors, dropped 2.6 percent to 75.7 based on contracts signed in June from 77.7 in May, and is 18.6 percent below June 2009 - another sign of the stagnant housing market.

"In many cases, people who have been trying to sell their homes for awhile have moved forward with their plans regardless, leaving a vacant home on the market," said Commissioner Poizner. "Having an unoccupied home can create several insurance implications that typically are not covered under a standard homeowners' policy."

Homeowners' policies are meant to insure homes that are occupied, so they generally include exclusions for neglect or property abandonment on a home left vacant or unoccupied for a specified number of consecutive days.

Because vacant and unoccupied homes pose a higher risk for damage than occupied homes, insurance companies insure these properties differently and usually at a higher price. These risks include:

• Break-ins: When a home has been unoccupied for awhile, it can show signs that nobody is around - unkempt lawn, full mailbox, and no lights on - that can tip off burglars to an easy target.
• No emergency response: Without anyone home to call 911 or respond to emergencies, a manageable problem - such as a small electrical fire - can turn into a much larger, more costly disaster.

As there are variations in language addressing vacant or unoccupied dwellings in the policies issued by insurers, it is of the utmost importance that homeowners read their individual policies very carefully. The definition of vacancy and unoccupancy can vary from policy to policy. Some insurers may not pay claims if a home is vacant for 60 days or more.

Some policies might automatically shift to a different amount of coverage (e.g. liability insurance only) after a specific number of days left unoccupied. It is also not unusual for policies to exclude coverage for losses due to vandalism, malicious mischief and/or breakage of glass if the dwelling had been unoccupied for more than 30 consecutive days prior to the loss.

Some homeowners' policies have a "vacancy clause" that can be triggered if the homeowner is gone for an extended period of time. If this happens, the homeowner could violate the terms of their contract and some or all of their coverage may not apply in the event of a loss.

"Before you decide to leave a home vacant or unoccupied for a long period of time, talk to your insurance agent or insurance company to learn how they define vacancy and unoccupancy, and whether the company will pay claims if a house is unoccupied," added Commissioner Poizner. "Be honest about your situation, because while an extra policy or endorsement to provide coverage during the vacant or unoccupied period of time might cost more, it could save you money down the road should there be an accident or damage to the home."

Whether you're a homeowner yourself, or a professional who works with homeowners, be aware that vacant or unoccupied homes can potentially be a major problem.  Read your policy and/or check with your insurance agent to find out exactly where you stand. 

Phil Oliver
Managing Partner
CIG Central Valley Insurance Agency