Secondary Home Insurance

You did it! You saved up the money, made the down payment, and closed on your first vacation home! Vacation homes or secondary homes are a huge asset and a place where you want to be able to relax and enjoy some time away and not have to worry about whether you have the correct home insurance for it or not.

If you have a second home, you might be asking things like:

• How is my home covered when I'm not there?
• Are my personal items in the home covered for theft?
• Do I have the same water protection as I do on my primary home?

I will go over these and other questions you might ask your agent when purchasing your second home.

How should I insure my vacation home?

Vacation homes are an exciting purchase, but they are a large investment, and you want to make sure you protect it properly. There are important coverage aspects of your second home policy that are essential to protecting your new asset. A second home policy should mirror your regular home policy in most states with a couple of small differences. The declarations page should list almost the same coverages (ie. Dwelling, Other Structures, Personal Property and Liability); but there are some major differences when it comes to the recommended levels of coverage and potential underwriting issues.

Step One: Make sure you ask for a Secondary home policy instead of a dwelling policy, a vacant home policy, or a vacant dwelling policy.

The reason you need a secondary home policy is that there is automatic coverage in a secondary home policy for your personal property, whereas a dwelling policy assumes you do not furnish the home and normally does not provide any coverage for contents. A vacant home policy will exclude theft and vandalism, which are things that are included on a secondary home policy. You will also want to look for Replacement Cost coverage on your dwelling and personal property to ensure your belongings are covered at the cost to purchase any damaged or stolen items brand new again.

Step Two: Now that you have the correct type of policy, you will want to make sure you have the correct level of liability. Vacation or second homes are traditionally riskier from a liability standpoint for three reasons:

• Liability coverage (Home insurance liability coverage) protects you in the event a lawsuit arises, and you are held liable for someone's injuries while on your property. Accidents are hard to predict, and you are at a higher risk of accidental injuries at a vacation home because of the nature of the activities you may be doing or hosting people that are coming on vacation with you.
  • Example: One of my clients was sued their first weekend at their new ski lodge when one of their friends who was there with them tried to ski right onto the deck from the slope. The guy broke his leg and couldn't work for 6 months as a result of the injury and accumulated hundreds of thousands of dollars in medical bills as he did not have health insurance. Luckily my client was covered in the lawsuit because he had $500,000 of Liability coverage on his secondary home policy.
• Because you are not always at this secondary home, it is going to be vacant for a large portion of the year. Having it vacant may mean that unwanted guests have access to your property. You can be held liable for any injury to someone on your property, even when it happens to someone you didn't invite.
  • Example: Someone knows you do not live at your lake house full time and they see that you have just left after a full week there and plan to break in and use it while you are away. While at your property, a terrible accident occurs, and someone drowns in your pool. Although you never knew about it or even wanted them there, you can still be held liable for this situation in court as you are the property owner.

Because of this, I strongly recommend higher levels of liability coverage to ensure you are covering yourself in the event of a personal injury lawsuit. Talk to your agent about umbrella liability coverage to make sure you have sufficient liability protection.

• The final reason secondary homes carry more risk from a liability perspective is that you now own multiple properties, so you have another asset that could be taken away if you are sued. Within most states, homestead laws protect you from a lawsuit taking away your primary home, but now that you have this second home you can potentially lose it or be forced to sell it to settle a lawsuit if you do not have sufficient liability coverage. Having multiple properties is the perfect time to add an umbrella to your insurance portfolio if you don't have one already. This policy can provide an additional barrier of protection between liability lawsuits and your net worth.
  

What kind of policy do I need for the additional home I just purchased? What are some important things to tell my agent?

With a secondary home, there are some potential underwriting issues that you will want to make your agent aware of so that you aren't risking having a claim rejected by having your policy written incorrectly.

You will want to tell your agent how you plan to use this home. Your agent will write the policy differently depending on if you'll be there a weekend every month, or only once or twice per year. Insurance carriers will typically rate more favorably if you're planning on being there often vs. If you're only there for certain holidays every year.

You especially want to tell your agent if you're planning on using this home for any home-sharing or short-term rental activities like Airbnb or VRBO. Not telling your agent about these activities can pose a major issue, and if this is not disclosed, the insurance company will likely reject any claims and cancel your policy.

Secondary home policies are not meant for a buyer who is planning to lease out their home, especially for short term rentals. If you do decide to take advantage of those types of home sharing activities, you will need an entirely different type of policy or a special endorsement on your secondary home policy.

Now that you have an idea of the important coverages and common underwriting issues, you can contact an agent to properly protect your new home and get the type of policy that best suits your needs.

Article written by: Agent: Nathan Archer