When you commit to buy a second home, that house could serve any number of purposes.
Perhaps you’ve finally saved up enough to buy a vacation home in your favorite place to visit, or you’re investing in a property to rent out as an extra source of income.
If your job makes you split time between cities, it may make sense to have a permanent dwelling in each place. Whatever the reason behind your purchase, you have to go through the same steps as in any home purchase, and that includes buying homeowners insurance.
Facts to Know About Second Home Insurance
Getting coverage for a second home is generally like insuring a primary residence, but with a few added wrinkles. These are a few of the most important facts about insuring the new property, ideas you should keep in mind to make your purchase as smooth as possible.
This way, buying a second home should be a relatively easy process. After all, you’ve already gone through the steps at least once, to acquire your first home.
1. Some Primary Insurance Covers Second Homes
The first thing to consider when approaching insurance for a second home is the potential ability to include multiple properties on the same overarching policy.
This is called blanket insurance, and including more than one house on a homeowners policy is just one of the situations where it may be useful, according to Investopedia. Blanket coverage is especially prominent when people own more than one rental property.
The question of blanket insurance, and whether it’s right for you, largely comes down to shopping around. Are you able to get a better rate on a policy that covers more than one house, or would savings and favorable terms come from taking out two separate policies?
As with all types of homeowners insurance purchases, you can and should get quotes from multiple insurers. While one provider may not offer a policy that suits your needs, another company in your region could have a different policy lineup.
2. Coverage Limits Depend on House Usage
How are you going to use your second home? Is it a vacation house? A rental property? A retirement destination? These are the questions that will determine what insurers can offer you.
If you’re planning to keep the house busy by renting it out to short-term tenants or long-term occupants, those scenarios call for additional specialized policies, as described below.
When the house is empty for long stretches of the year instead, that brings its own type of risk. A fire, storm, or other disaster could cause extra destruction if no one is around when it strikes.
As with all insurance-related matters, the insurer will determine the relative risk posed by a property before assessing what coverage limits, interest rates and deductibles to offer.
With second homes considered more risky than primary residences in general, it’s likely you’ll have to make some compromises relative to the terms of your full-time residence’s policy. Some insurers may also be able to give better deals than others.
3. Vacation Homes Present Special Risks to Think About
What is it about vacation houses that makes them so risky in the eyes of insurers? According to the Insurance Information Institute, one of the primary factors is the location.
Many of the top vacation spots are located close to the beach, on a fault line or both. Floods and earthquakes are some of the most devastating types of natural disasters, and they aren’t covered by typical homeowners policies, adding red flags to second home insurance policies.
The III noted that some manmade creature comforts also increase risk: Pools and hot tubs can bump up the costs for your homeowners insurance. As with primary homes, the type of house you’re buying will determine the base cost of a vacation home insurance policy.
The III cited the difference between single-family homes, condominiums, and townhouses as a major consideration for insurers. For example, a condo in a development that is maintained by an association may be more affordable to insure than a standalone house in the same area via specialized condo insurance.
4. Renting a Home May Call for Specialized Coverage
If your second house is mostly a vacation home, it may become a useful source of income through rentals during the months when you’re not there.
Such a situation calls for extra insurance protection, however. If you’ve bought the house specifically to host renters and tenants, securing this additional coverage should be a major point on your home buying checklist.
Hotel or bed and breakfast policies, which are business rather than domestic insurance policies, are needed if you regularly rent the home for short periods. If you take on longer-term renters, the III stated that you need a landlord or rental dwelling policy.
While landlord policies are more expensive than typical homeowners policies, they’re essential when someone else is living in your home. They deal with structural damage coverage, liability for your tenants and, in most cases, loss-of-income claims when the house is undergoing repairs and is unavailable for rent.
The III noted that these policies cover you and your belongings, not your tenants. You may require people renting the house to take out renters insurance, which will protect these tenants and their property.
5. There Are Steps You Can Take to Minimize Second Home Risks and Costs
When searching for a second home, you can think in terms of potential insurance costs when deciding on a location or a particular property.
While it may seem premature to be thinking about insurance before you’ve even started negotiating a price, coverage costs will become relevant very quickly, and therefore, it’s wise to keep them in mind. You can also make some improvements or investments in the house after you’ve bought it to bring your premiums down.
The III has suggestions about money-saving measures, including the following:
- Choose a safe location: While buying a beach house directly adjacent to the sea may be an exciting prospect, it could also bump up your homeowners insurance costs. The same holds true for buying a ski chalet located in a possible avalanche zone. By contrast, insurers may give you a break on premiums if you pick a safer spot for your vacation house.
- Skip risky amenities: As discussed above, pools, hot tubs, and other additional features come with insurance risk. If you’re considering installing one of these items, you should add insurance costs to your price projections.
- Install a security system: When you add a centralized security device, one capable of detecting fires or break-ins and reporting to a third-party control center, you limit some of the general risk associated with owning a home. Many insurers offer corresponding coverage discounts.
Shop Around, Bundle and Save
While there are general rules for minimizing the costs of second home insurance, your real savings will likely come when you shop around and compare insurers’ offerings with one another.
Sometimes, your best course of action is to buy a policy from an insurer you already use for your car, life, or primary residence insurance policy.
Many companies offer bundle options, loyalty discounts, and reductions in price if you go for a long time without making a claim. Finding the right mixture of bonus discounts can offset the extra expenses that come with purchasing insurance on a second house.
Your second house may be in a different part of the country from your main residence. In these cases, it can pay to inspect the unique lineup of regional and national insurers active in your chosen city or town.
Not only may you have options that aren’t available at home, but the same companies you deal with every day might also change their offerings based on where your residence is located.
Additionally, you may find yourself in need of flood or earthquake insurance on your second house based on its location, so it’s important to think of the specific risks your new property is facing.
Comparing offers and shopping around to secure an ideal price on insurance for your second home is similar to the process you ideally undertook for insuring your first home.
Instead of assuming the first insurer you talk to is offering you the best possible deal, you can and should compare providers side by side to determine how you can get the coverage you need at a price that suits you.*While we make every effort to keep our site updated, please be aware that "timely" information on this page, such as quote estimates, or pertinent details about companies, may only be accurate as of its last edit day. Huntley Wealth & Insurance Services and its representatives do not give legal or tax advice. Please consult your own legal or tax adviser.