Own a vacation home? Your insurer might use one of these loopholes to avoid covering you

People fortunate enough to own vacation properties likely insure their places just like they do their personal residences. But if they don’t tell the insurance company that their getaway home is not always occupied, they could be in for some surprises.

Holiday homes that are not occupied year-round are a greater insurance risk: Since no one is around for extended periods, there’s no one to spot a broken pipe, a leaking roof or any of the other myriad things that can go wrong. If a problem is not caught early and repaired, the damage could be extensive. That’s why insurers usually charge more for homeowners policies on vacation houses.

But if you don’t inform the company up front and then need them to step in later, your claim could be denied. Your policy could even be canceled. Even if you rent out your place for some of the time, you could run into trouble if you don’t advise your insurer, warns Chris Carter, author of the Florida Real Estate blog.

Depending on the circumstances, he says, the company could look the other way, require a rental endorsement or say it won’t cover rentals at all. That’s why you should be forthright with your insurance agent about your situation and your intentions. Otherwise, you might find yourself in a scenario that impacts coverage of your primary home, according to Richard Rudolph, a research fellow at the Texas Real Estate Research Center (TRERC).

Some carriers have specific underwriting rules about secondary houses, says Rudolph, who warns that it’s best to learn about them before you take out a policy. If not, you’ll “certainly learn them after a loss occurs,” writes Rudolph in a recent TRERC article.

Industry expert Mark Friedman recommends obtaining at least three quotes, as costs vary among carriers. But a good place to start is with the same company that insures your main residence. In fact, some carriers will not insure second homes on a stand-alone basis; they want both policies or none at all.

A second reason to give your current carrier an opportunity to bid has to do with liability. While the vacay house is insured for property losses in the same manner as a primary dwelling, liability coverage is somewhat different. Rather than location, liability coverage is based on the actions of the insured. If you fall off a ladder and are hospitalized for an extended period with a broken back, you’ll be covered. Ditto if a contractor sustains a concussion when a beam falls on their head.

You have liability coverage on your main property, so you don’t really need it on the secondary home. But if you ask the insurers to drop it from your second home’s policy, it will “result in a higher premium on the property portion of the policy and less favorable coverage,” Rudolph writes.

Susan Evans of Long and Foster Insurance always recommends carrying liability on both properties, if for no other reason than it simplifies claims, especially if your main policy is with one carrier and your second property is covered by another. If you are with the same carrier on both properties, the two policies would share the claim. But if two different companies are involved, one may balk, possibly resulting in gaps or overlaps in coverage. These often end in time-consuming disputes — and maybe even expensive litigation.

If your house is vacant for any period of time, your insurer will want to know. “Vacant,” as far as insurance companies are concerned, means that the house will remain empty and unoccupied for some time — for example, if you leave your Arizona hacienda in May with no plans to return until December.

“Unoccupied,” on the other hand, means you plan to return sooner rather than later. Consequently, you leave your personal effects and make sure the utilities are on and fully functional. (If the place is vacant, you might still leave the utilities running to prevent mold, but you’d turn the water off and drain the pipes.)

Your carrier will also want to know if you plan to rent out the place. If so, you could be considered to be operating a business. Indeed, if you rent the place year-round to a single tenant, your place is no longer considered a vacation home: Now it’s an investment property, with a whole different set of rules.

Generally, though, if you are renting periodically and your income from the property exceeds $2,000 in any calendar year, you are operating a business, and Rudolph writes that “an entirely new layer of complexity” comes into play. In a worst-case scenario, your policy could be all but useless if it is determined that you violated the business exclusion.

Or, while you could collect damages to your furnishings, including carpeting and appliances, theft may not be covered. Personal liability may or may not be covered, depending on the policy and how it is interpreted.

That’s why Evans suggests that landlords require renters, even those who only stay for a weekend, to carry a tenants insurance policy — one with at least $300,000 in liability coverage. Make it part of your lease, she says. A tenants policy “offsets having to go after individual tenants” who damage your house or injure someone while they’re there.

Lew Sichelman has been covering real estate for more than 50 years. He is a regular contributor to numerous shelter magazines and housing and housing-finance industry publications. Readers can contact him at lsichelman@aol.com.)