After Jeff and Cynthia (not their
real names) built a new home a few years ago, they kept their
original home as a rental property. They learned quickly that
keeping good tenants in a rental home can be a challenge. Last
year they had to evict their problem tenants, and they spent
several weekends cleaning the house and repairing their tenants'
damage. Full of hope, they finished the work, and set up an
appointment to sign a lease with new tenants.
The house burned to the ground the
night before that appointment. They watched the firefighters
fight hopelessly against the blaze. They saw their investment go
up in smoke, and they felt the gut-wrenching emotions of seeing
their first home destroyed.
House fires are always
investigated, and the inspectors found traces of gasoline and a
gas can in a closet. They interviewed Jeff and Cynthia, although
they had no evidence that they had set the fire themselves. They
investigated the former tenants and the neighbors, but were
unable to determine the arsonist.
Then Jeff and Cynthia got their
next shock. Their insurance company said they would not pay the
claim because the house was vacant at the time. Most companies
stop coverage for vandalism and malicious mischief after the
building has been vacant for 30 days. Their rental home had been
vacant for 36 days.
They came out okay in the end,
however. The insurance company agreed to pay off the mortgage.
Most mortgagee clauses have wording that allows the mortgage
company to be paid even if the claim is denied to the named
insured because of acts of the insured or a substantial increase
in the hazard insured. Later, Jeff and Cynthia were able to sell
the land for about the amount of their equity in the property.
Their nightmare was over.
The High Rate of
Foreclosures
The high rate of mortgage
foreclosures has exacerbated the problem of insuring vacant
homes. These houses have saturated the home market, and homes
placed on the market are taking much longer to sell. Many
homeowners who have already moved have had to leave their old
home vacant for several months or longer while they try to sell
it. At the same time, there have been an unusually high number
of house fires in vacant homes in Ohio in the last two years
because of the special hazards that exist with these vacant
homes.
What Coverages Are Changed
When a Home Is vacant?
There are three major changes
in coverage on a vacant home. (Vacant means empty, with the
furniture removed. This is different from a home that is
temporarily unoccupied, but to which you intend to return, such
as a second residence.)
- Most companies will not
cover vandalism and malicious mischief after the home has
been vacant for thirty days.
- Most companies will not
cover frozen pipes unless the you have taken reasonable care
to keep the heat turned on and otherwise prevent the pipes
from freezing.
- Most companies will drop
the policy entirely at some point. Most often the company
will refuse to renew the policy on its annual renewal date.
If you have a longstanding relationship with the company,
and have your new home and your cars insured with the
company, then the insurance company might hold the policy
longer as an accommodation to you. If the house is
completely abandoned, however, some companies will cancel
the policy immediately because of the substantial increase
in the hazard.
These policies vary from company
to company, so speak to your agent for details about how your
company handles vacant homes.
What Can I Do?
The goal of this article is
to prevent a similar nightmare for you. It is true that
vacant homes are a higher risk, and the insurance company will
probably limit the coverage when a home is vacant for an
extended period. There are things that you can do, however, to
avoid those limitations and to manage the risks and keep your
vacant home safer. It is very important that you understand the
coverages affected and how to manage it.
The first thing is to avoid
vacating the house, if you can. Sometimes it is impossible to
avoid moving out of the house before it is sold; or to avoid
having tenants move out before new tenants are ready to move in.
In these cases, try to make the house look occupied, and spend
the night there occasionally. This could be expensive, but it
might be worthwhile. You might be able to do it less expensively
if you have a friend or relative who is a college student or
young adult who needs a free place to stay. It isn't necessarily
easy; but if you do, then the house will not be vacant, you are
less likely to have a loss, and the policy will cover it if you
do.
Why Are Vacant Homes Such a
High Risk?
It is a combination of
additional hazards, and less ability to control those hazards.
- There is no one there to
keep things under control. If you were home when the heat
failed, you could get it repaired before the temperature
fell and the pipes burst. You might also spot faulty wiring
or small plumbing leaks before they became big problems.
When the home is vacant, no one notices these things until
it is too late.
- A vacant home can become a
target for mischief-makers, thieves, and vandals. These
extra hazards include kids throwing rocks at the windows,
kids playing inside the building, or trespassers smoking and
starting a fire. Even worse, it could become a hang-out for
vagrants or criminals. This is what is called an "attractive
nuisance."
If the Company Drops the
Coverage on a Vacant Home, Where Can I Get Coverage?
It is very difficult and very
expensive to obtain insurance coverage on a vacant home. You
will have to go to a high-risk insurance company that
specializes in cases like these. Even the Ohio FAIR plan, which
is the insurer of last resort for people who have difficulty
finding coverage in the voluntary market, will not insure a
vacant home.
There are a few options
available, however. Talk to your local agent ... but be
forewarned that it is much more expensive than standard
homeowners insurance.
What Can I Do To Prevent
Losses on a Vacant Home?
You can make the home look
lived-in, and you can find other ways to watch the house. Try
the following:
- Before anything else,
notify local police and give them an emergency contact phone
number.
- Adjust the thermostat. In
the winter, keep the heat no lower than 55 degrees.
- If it will be empty for an
extended period, have the water turned off and the pipes
drained.
- Make it look occupied by
keeping the grass cut, the snow cleared, the yard
maintained, and curtains drawn (at least on the front).
- Ask a neighbor to park
their car in your driveway.
- Put several lights on
timers, along with the television or radio. Set them at
different times so that someone who watches the house will
see lights go on in one room and off in another, creating
the appearance that someone is home and moving around.
- Trim the shrubbery near
the entrance and walkway. This makes it harder for someone
to hide, and it also makes it appear you live there.
- Set up a monitored
security system. Let the security company be your eyes and
ears.
What Else Should I Do?
Talk to your agent! Together,
you can work on ideas to minimize the risk. Understand also that
he has a duty to let the insurance company know that the house
is vacant, but don't let that put off this valuable
conversation. The coverage will be limited whether or not you
have notified the agent or the company that the house is vacant,
so it is better to be up-front about it and discuss solutions.
Hiding the truth won't change it.
That being said, everyone
understands that this is a difficult situation. Even if your
company can't do what you want, your agent should be able to
help you. A good agent will help you manage the risk, and will
even help you switch to another company if it becomes necessary.
If your agent can't or won't do this, then consider switching
agents. Isn't it worth it to protect your investment?
