Housing Challenges Raise Insurance Issues

Since the housing market slump began in the United States, the homeownership rate has dropped from a peak of 69.2% in 2004 to 65.9% during the second quarter of 2011 — the lowest rate since 1997. In addition, 10.8% of all U.S. homes are currently sitting vacant.¹

These changes in the housing landscape mean that more Americans are renting the homes they currently live in, some homeowners are becoming landlords whether they planned on it or not, and many houses are being left unoccupied and vulnerable.

It’s important for both renters and absent homeowners to protect themselves financially against damage from disasters and liability related to other potential hazards. Moreover, homeowners who are forced to leave a home unoccupied or rent it out to new tenants may not realize that the decision to move out of a home can affect their insurance coverage.

Renter’s Need Coverage, Too

A poll taken in 2010 found that fewer than half of the people who are renting homes purchase renters insurance.² Of the more than 100 million Americans who are renters, more than half are leaving themselves exposed to a substantial amount of risk.³ They could lose all of their personal belongings if damage to their homes occurred as a result of a fire, smoke, lightning, vandalism, theft, explosion, windstorm, or water problem.

A renters policy covers the renters’ belongings and provides them with their own liability protection, up to the policy limits. It may also pay for their additional living expenses while the property is being repaired.

Unoccupied = Increased Risk

Because of a larger inventory of available homes, sellers must sometimes move to new homes and even new towns before their old homes are sold. Vacant homes can attract vandals and thieves and are more susceptible to fire and water damage. But they may also be vulnerable to a number of additional liability issues, such as when kids or teens enter the property to swim in a pool or party with friends.

For these reasons, insurers consider vacant properties as more risky, and policies often have vacancy exclusions for vandalism and broken glass that can be invoked if a property is left empty for more than 30 or 60 days. In some cases, insurance coverage may be discontinued entirely.

An endorsement that counteracts the vacancy exclusion may be available in conjunction with your standard homeowners policy, but it might not be offered by every insurer. If it isn’t available, a separate vacant-home policy — which covers unoccupied homes for an extended period of time — may be available. These are useful not only when a property is on the market but also when a home is left unoccupied while being remodeled, or when the owner takes a vacation longer than 30 to 60 days.

Protecting Your Investment

Sellers who become frustrated with the pace of home sales may choose to rent their homes out instead. New landlords may need to revisit the insurance policy to ensure that their properties are adequately covered.

Landlord policies are slightly different from standard policies that cover owner-occupied properties. They cover the home and other structures, any of the contents that belong to the owner, lost income resulting from damage to the building, and legal fees and liability coverage in the event that a tenant or other individual is injured on the property. Landlord policies generally do not cover personal property that belongs to the tenants.

Some property owners require tenants to show proof of their own renters insurance policy. The extra protection might prevent a tenant from suing a landlord in the event of a fire or other mishap on the property.

Whether you become a tenant or a landlord, it’s important to discuss a potential move with your insurance agent well in advance. Your agent can review your current policy as well as your needs, and often can recommend an appropriate course of action for your personal situation.

1) U.S. Census Bureau, 2011
2) Insurance Information Institute, 2010
3) Reuters, August 16, 2011

The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. © 2011 Emerald Connect, Inc.