How Does Occupancy and Vacancy Impact Insurance?

Written by April Weismann on 01/03/2018 11:55 AM in Property Insurance.

HPM Insurance blog on vacancy issuesLife can bring many changes, including the occupancy or vacancy of a property you own.  Though insurance may seem like a minor detail that will pay any claim because you paid the premium, it is important to remember that insurance is a contract with set definitions, conditions and exclusions.  If the property definition changes based on its occupancy or vacancy, so may the coverage.  Here are a few tips to consider should you find yourself in this situation.

The impact vacancy and occupancy can have on insurance

Common examples of occupancy changes include:

  • You decide to permanently rent out your home
  • Your tenant moves out and the property is vacant
  • Your mother passes, leaving her house empty

Why who lives in your home can matter to an insurance company?

When you have a homeowner's insurance policy, the carrier is agreeing to insure the "residence premises".  This is defined in most policies as essentially a dwelling where you reside and is listed on the policy.  If you do not actually live in the dwelling insured, your property is not meeting the definition of a residence premises and hence up for question on whether there would be coverage in a claim.

The reason for the residence premises definition most likely comes down to the probability of a claim.  It should not be surprising that homes that are not owner-occupied are more likely to have a claim than if an owner lives there.  If a home is vacant, it could be days, even weeks, before a burst pipe is even discovered.  If a home is tenant-occupied, why bother fixing or even mentioning the roof tiles that are lifting?

Why vacancy and occupancy can be an issue with rental properties?

Whether you are a landlord of a single-family home or a multi-unit residential complex, the insurance company is relying on the fact that the property, or a majority of the property, is occupied by tenants. 

Depending on the carrier, it is considered reasonable for there to be short stints of vacancy should one tenant move out and another move in, but check with the company to be sure you are not exceeding what is considered reasonable. 

It would most likely be considered differently if a tenant moves out and there is no intention of replacing them as perhaps you want to renovate or sell the property.  It is strongly advised that you consult with an insurance professional should you find yourself in this situation. 

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How do I cover my property if the occupancy changes or is vacant?

The first thing to do is speak with the insurance professional insuring the property.  Let them know the details of your plan such as:

  • How long do you think the change will last?
  • How often are you checking on property?
  • How will heat be maintained and monitored?
  • Will you hire a property manager?

Though insurance has become highly automated, there are often underwriters who have some leeway and ability to make judgements.  It may be different if you live next door to a property you own and check on it daily vs the property being far away with no plan to have anyone look after it.

If the company decides to cancel your policy, there are normally other options.  If renting out your property, you can get a landlord's policy also known as a dwelling fire policy or a business owner's policy. If the property is vacant, you can get a vacant dwelling policy.  These policies will most likely be more expensive, but better to pay premium for a policy that can actually cover a claim versus paying premium on a policy that won't.

What if I don't tell my insurance company about a change to occupancy or vacancy?

If you decide not to tell your insurance company of any changes and just take a risk, you really are taking a risk.  Within the policy itself, there may be language indicating that there is no coverage for specific losses like freezing of pipes or heating systems if heat is not maintained or water shut off.  (Even if you do maintain the heat, what if the power were to go out for several days?) 

There may also not be coverage for vandalism or malicious mischief if dwelling has been vacant for more than 30 days immediately before a loss.  

In short, an insurance policy is a contract between parties: you and the insurance company.  Making sure you understand the terms of this contract, or at least where to go to get help understanding, is the best way to protect your property.

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