Vacation and Secondary Home Insurance

Anyone thinking about buying a vacation home, second home, or condo should think about the risks and insurance costs that come with it. Many factors influence home insurance pricing, and quotes for a secondary home are almost always higher than quotes for a primary residence. The reason for this is that having someone inside a home helps to protect it from dangers and deters burglars.

This guide will assist you in determining whether you have adequate insurance coverage for your secondary or vacation home.

According to the U.S. Census Bureau data from 2000, there are more than 3.6 million homes and condos in the United States that are only used seasonally. That accounts for about 3.1% of all homes in the country, but in Maine, New Hampshire, and Vermont, seasonal homes account for more than 10% of all homes and condos. With 484,825, Florida has the most seasonal homes.

Cost to insure secondary or vacation homes

A homeowner can insure a vacation home by purchasing a separate home insurance policy for the seasonal residence. The premium will be calculated using the same factors as any other home insurance policy — the replacement cost value, the deductible you select, and other applicable risks — but it will be higher than if the same home was your primary residence.

Vacation homes are more expensive to insure because they are usually unoccupied and have a higher risk of claims being filed. Assume a vacation home catches fire in some way. If no one is present to call the fire department, the loss could be catastrophic, especially if the home is located in a remote area. While this is an extreme example, it illustrates the increased likelihood of filing a home insurance claim.

• Each second-home insurance company imposes a different surcharge or raises the premium by a different amount. State Farm, for example, applies a 10% increase to policies covering secondary homes, while Nationwide applies a 20% increase. In other words, suppose the annual premium for home insurance is $1,000. If that home is a secondary residence and a 20% surcharge is applied, the premium for the same coverage would be $1,200 per year.

Some companies charge different surcharges depending on the circumstances of the secondary home. American International Group (AIG), for example, differentiates secondary home risks based on whether they insure your primary residence, if a full-time housekeeper lives in the home, if a caretaker lives on the estate grounds, or if a maintenance company checks on the home. The chart below breaks down the various AIG surcharges. A "supported" home is one that is insured in addition to the primary residence. AIG insures an "unsupported" vacation home but not a primary residence.

Do not make false statements or lead your carrier astray by claiming that your secondary residence is your primary residence. The insurance savings are not worth the risk. If you need to file a claim for your vacation home and the provider discovers you lied about its status, your home insurance company is likely to deny your claim and cancel or refuse to renew your policy. It makes no sense to pay for a policy that may deny you coverage solely on this basis.

Ways to lower your vacation home insurance premium

The luxury of having a vacation home often comes at a higher cost, but there are ways to reduce your home insurance premium. Most improvements to a second home will cost more than what you will save on your premium, though they may lower your insurance rates.

For example, policyholders receive a discount if their home has a central alarm system, but the premium savings are far less than the subscription fee for eligible systems. This isn't to say that installing a central alarm system isn't worthwhile, especially in an unoccupied home. It would be an excellent deterrent to burglary.

Making a vacation home more secure reduces the risk of something bad happening to it and lowers the likelihood of the policyholder having to file a claim — and this is the most important thing. Maintaining a claim-free record is critical to lowering the cost of your second-home insurance premium. For example, if you have been a State Farm policyholder for less than two years and have one paid claim, your premium will rise by 15%. If you file two claims within three years, your premium will rise by 35%.

A home insurance policy for a vacation home usually qualifies a policyholder for a bundling discount in addition to the discounts available for a primary residence.

Other coverages you might need to purchase

In addition to a home insurance policy, you should consider whether your secondary residence requires flood and earthquake insurance. Flood and earthquake damage are not covered by standard home insurance policies, but depending on where your vacation home is located, they may pose a serious risk.

Assume you own a beach house on the east coast of Florida. A hurricane's storm surge (an abnormal rise in tide) could easily flood and damage your property. Alternatively, your Southern California retreat could be in an earthquake-prone area.

You should think about this before buying a seasonal or vacation home because either of the aforementioned insurance policies can be quite expensive. The average cost of earthquake coverage in California is $1.75 per $1,000 of coverage, which means that a $250,000 home would cost $437 per month to insure. Keep in mind that the monthly premium is in addition to the cost of your standard home insurance policy.

Vacation home rental insurance

What if I want to let my vacation home out? Renting out your vacation home is a great way to offset the cost of ownership, but make sure you understand the insurance implications first. You may need to notify your carrier or purchase a separate landlord insurance policy depending on the frequency and length of your stays.

• For example, if you rent out your vacation home through a service like Airbnb a few weekends a year, you probably don't even need to notify your insurer. However, if you rent your second home for weeks at a time throughout the year, you must notify your insurer, and a surcharge will most likely be added to the premium of the policy that covers the home. If you rent out your home for an extended period of time, particularly to a single tenant, you should consider commercial or landlord insurance.

If you're thinking about renting someone else's vacation home for a short time, you're probably already covered by your existing homeowners or renters insurance policy.

Most businesses provide "off-premise" coverage for the policyholder's personal belongings. Check to see if your policy covers this, and make sure you understand the details. There is frequently a claim limit, which is usually 10% of the replacement cost value of the home covered by the policy. Consider adding an endorsement to your policy before your trip if you are bringing items worth more than that amount.