Owning a second home means whether or not you have a mortgage, you're going to need homeowners' insurance and sometimes it's difficult to know how to purchase the appropriate type of or amount.
First, it's important to know how your second home is classified. If the home is rented out full-time on a long-term lease — usually six to 12 months — it’s not considered a second home from an insurance perspective, explained Laurie Haas, vice president for private risk services with Lovitt & Touché, an insurance brokerage. “It becomes a tenant-occupied location and the policy should be written to contemplate this exposure,” she said. “Some carriers offer the same type of coverage provided on a primary home to a secondary or rental home but some will require a tenant-occupied location to be written on a dwelling fire form.”
However, she noted that if the home is mainly used as an owner-occupied secondary residence and only rented out on occasion, most insurance carriers want assurances the income generated doesn’t exceed the limit allowed under the policy for incidental business use. “Remember,” she said, “a personal policy is just that: intended for personal use.” Homes listed on vacation rental sites such as Airbnb and VRBO have a different exposure and “it’s important to ensure you have secured the right type of policy to cover the home in the event of a loss. A standard homeowner or tenant policy is not designed to pick up the exposure of a home solely used as a vacation rental property.”
Standard homeowners’ insurance should be the minimum for a second home in Prescott, Payson or Flagstaff, said Dax Ramirez, a real estate agent with Keller Williams Northeast Realty group in Phoenix. “Due to wildfires, insurance companies have concerns and go through a more extensive review to weigh the risks of fire hazards based on individual property variables,” he said.
Yet there are no hard and fast rules for minimum insurance requirements for a second home, Haas pointed out. “Insurance carriers may have underwriting requirements to meet eligibility. HOAs may also have their own guidelines for minimum standards,” she said. “For homes in wildfire-prone areas, mitigation efforts such as brush clearance to create a defensible space, trimming of tree limbs and clearing debris out of gutters are becoming standard requests. Anything a homeowner can do to make their property a more desirable risk not only helps minimize the potential severity of a loss it also increases the willingness of a carrier to provide coverage.”
It’s not uncommon for a carrier providing coverage on a home that is not lived in full-time to ask for additional risk management compliance “to reduce or minimize the likelihood of a loss,” Haas added. This might include a monitored burglar and fire alarm, a property manager or neighbor to check on the house frequently as well as the leak detection system that shuts off the master plumbing valve if a leak is discovered.
Ask the experts
"Talk to your REALTOR® or insurance agent,” Ramirez said, “and let them know what your intention is with the second property. This will help them determine the right insurance for the property and give you a better understanding of requirements and costs.”
"Be honest with your agent or carrier about the intended use of the property," Haas advised. "If your agent or insurance company makes recommendations or requirements to reduce the chance or severity of a claim you should heed their advise and take action. Lastly, don’t choose an insurance product based solely on the premium. The real value is in the loss settlement provision and features and benefits of your policy, not the cost.”