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Vacant Dwellings Require Different Kind of Insurance Policy

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By Alan Heavens

RISMEDIA, March 19, 2011—(MCT)—More and more houses sit unoccupied these days, left behind by their owners in this still-tough economic climate. In 2010′s fourth quarter, the Census Bureau reports 12.1% of all U.S. residences, or 18,394,000 homes, were vacant. Record foreclosures are a big reason: After repossessing houses at sheriff’s sale, many lenders leave them empty for months.

But even properties that aren’t distressed may take a long time to sell after the owners move on. In the Philadelphia region in January, time on market averaged 103 days, according to Prudential Fox & Roach’s HomExpert Market Report. All of which makes a difference in the kind of insurance coverage such unattended houses require—coverage that isn’t offered in the standard homeowners’ policy.

Vacant Home Insurance Now, which offers policies in several states, says up to 80% of homeowners do not know that “the provisions of their existing homeowners’ insurance policy would essentially end coverage, exposing them to catastrophic loss.”

Said associate broker Mark Wade, of Prudential Fox & Roach in Philadelphia: “Few sellers are aware of the fine print in their insurance binders.”

Loretta Worters, a spokeswoman for the Insurance Information Institute in New York, said, “Insurers discontinue coverage on a home if it becomes unoccupied for over 30 days and no new residents have moved in.” Some insurers will grant a policyholder a vacancy permit, Worters said, providing it is requested before the 30 days expire. “This permit continues to provide coverage against some of the standard homeowners’ perils, such as fire and wind, but does not protect the house against perils such as theft, glass breakage, or water damage,” she said.

Coverage provided by a vacancy permit varies from insurance company to insurance company, so policyholders should check with their agent or the firm’s representative, Worters said. Insurers view a vacant property as a higher liability because often no one is regularly checking it, Wade said.

If there is a serious problem—for instance, the furnace dies, pipes freeze and burst, and water fills the basement—”the resulting damage is likely to be worse because no one is around to report it or stop it,” Worters said.

A vacant condo is another story, said Wade, who specializes in them. “Since the master insurance policy covers such a large part of the condo, including the wall, exterior and roof, I would have to guess that a vacant condo is going to put a homeowner at significantly less risk,” he said.

Agent Ruth Feldman, of Weichert Realtors McCarthy Associates in Mount Airy, P.A., said she tries to visit her vacant listings every week or two “to make sure everything is OK.” Her office mails a “vacant listing letter” every fall, reminding owners to keep their heat on or to have their houses winterized, and “asking if they would like our property-management office to handle snow shoveling,” Feldman said.

Noelle M. Barbone, manager of Weichert’s Media, P.A., office, suggests that when a vacant home is listed, “there should be a detailed discussion between the homeowner and the agent on how the property will be managed.”

“A homeowner needs to have a specific plan in place to have the dwelling checked periodically by someone,” Barbone said, typically a neighbor or relative, as well as the agent.

The premium on vacant-home insurance can be 50-60% more than that of a regular homeowners’ policy, Worters said. “The price depends on a lot of factors, such as whether a home has a central alarm system, deadbolt locks, and/or smoke detectors,” she said. “Insurers may also assess whether a policyholder has winterized their home to protect plumbing fixtures from freezing temperatures, and how long the house will be vacant,” Worters added.

Some large real estate companies have ancillary insurance businesses that offer vacant-home coverage at a discount to sellers listing properties with them.

For example, Trident Insurance, associated with Prudential Fox & Roach, offers coverage to clients that could be one-third the normal cost of vacant-home insurance.

Weichert Realtors does, as well. When asked for information on a policy for a house valued at $235,000, Weichert Financial’s Lynne Guard offered one at an annual cost of $2,858.15. The annual premium on the standard homeowners’ policy was $1,300.

Neither the Weichert nor the Trident policy can be canceled on a short-rate basis—meaning that if the house is sold in less than a year, before the expiration date of the policy, the seller will not incur a financial penalty.

Guard said the Weichert policy is written at the replacement-cost value of the home, with basically the same coverages offered on a homeowners’ policy. The policy she quoted covers vandalism and malicious mischief, which are, in many cases, excluded from a vacant-home policy.

There is a $1,000 deductible and $1 million in premises liability, Guard said, meaning that coverage does not extend past the property named on the policy’s declarations page.

Liability coverage is critical, considering that agents and prospective buyers, as well as a host of service providers, can be walking through at any time.

(c) 2011, The Philadelphia Inquirer.

Distributed by McClatchy-Tribune Information Services.

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