Insurance Needs Change When Building Is Vacant or Being Worked On

June 26, 2009


Chicago's Row Houses Are a Favorite Rehab Target

Chicago's Row Houses Are a Favorite Rehab Target

Over the past few months, I have noticed more and more home insurance activity:

  • People picking up houses in foreclosure to fix it up to rent out;
  • Buying foreclosures to move in to eventually;
  • Renovating homes to flip them;
  • People who can?t sell their homes either (1) renting out their homes or (2 ) even walking away from their homes.

Whatever the reason is, please understand something very important: A standard homeowners insurance policy does not provide coverage for vacant homes, homes under construction, being renovated, or rented to others. A standard homeowners insurance policy is designed and rated for the insured who plans on moving into the home permanently. If there is any variation of this, the policy becomes null and void?immediately.

What should you do if you or a client find themselves in one of the above mentioned situations? Call you friendly neighborhood insurance agent and explain the change in risk. By doing so, you will have the appropriate coverage to protect your biggest asset?even if that asset is not working for you at this time.

An Example of When Standard Homeowners Insurance Won’t Work

A client is buying a foreclosed home in Chicago because it was such a great price. The client does not have any immediate plans on what to do with the home.

  • Option 1 Keep the home as is, vacant, and maybe sell it in a year or two.
  • Option 2 Rehab the home: update the kitchens, bathrooms, windows, paint, and possibly rent out.
  • Option 3 Rent out the home as is, until the market gets better and then re-evaluates the options.

Most times, clients call and tell me that they are buying this home and it will be “owner-occupied” because that is what the loan requirements state. Most insurance agents will write an “owner-occupied,” standard home insurance policy because (1) the client doesn?t disclose the truth or (2) the agent isn?t providing the level of professionalism that the client needs. A good insurance agent will ask the right questions to get to the truth because it is the agent’s job to protect you in the event of a loss.

The Possible Solutions

  • Solution 1 The client purchases a Vacant Building policy that not only protects the mortgagee’s interest but it also protects the client’s interest because he just spent $340,000 on a home and if it burns down, the client would want the home rebuilt. A $ 340,000 Vacant Building policy will cost $1396 per six months. The client can lower the amount of coverage to fit their risk tolerance and budget. At $200,000, the six month premium drops down to $842.
  • Solution 2 The client needs to purchase a Builders Risk policy, again, to protect the mortgagee and their selves. The Builders Risk policy covers not only the existing structure, but all of the money you will invest into the home. The client is planning on spending $260,000 on the full, gut rehab of the home. A $600,000 ($340,000 existing structure + $240,000 renovations) will cost only $1,200 per year.
  • Solution 3 The client needs to buy a Dwelling Fire policy, again, to protect the mortgagee and their selves. The Dwelling Fire policy will provide coverage for the existing structure, and more?very similar to a standard home policy. It will als, recognize the fact that the home is being rented out and in the event of a loss, the policy will reimburse the loss of rent you will experience. A Dwelling Fire policy will also provide the client with Liability and Medical Payments to Other coverage. This is important for the client to protect their financial exposure, in case your tenants have a party and someone gets hurt. Here is the kicker: A $340,000 Dwelling Fire policy will only cost $921 per year.

As you can see, a good insurance agent will make sure the client is protected, and the costs of doing so are minimal when compared to the worse case scenario?of having no coverage.

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About Michael Rice

Michael Rice is an insurance broker at Thomas Ward Insurance Group in Lincoln Park. He started working in the insurance industry in 1993, with Thomas Ward, as the city's first American Family Insurance agents. After a few very successful years at American Family, he realized that to be truly successful he needed to be able to provide his clients more than a "cookie-cutter" approach to insurance ? one company can not solve every clients needs. So, in 1999 he and Tom took the chance and opened up their own independent insurance brokerage and have never looked back. He now represents some of the countries top ranked insurance carriers. Michael resides in Chicago, IL with his gorgeous wife and three boys. You can reach him at Visit his website at

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3 Responses to “Insurance Needs Change When Building Is Vacant or Being Worked On”

  1. Mattwi Says:

    It is a growing problem, most people just aren’t aware you can’t cover unoccupied properties on a home policy, even some landlords I know.

  2. Vacant Home Insurance Now Says:

    Great article. We run an insurance company our of PA that is an insurance broker exclusively for vacant homeowners insurance policy and find it amazing that many homeowners are not aware of the risks of leaving a home vacant. Moreover, insurance companies arent proactive in notifying homeowners if the risks. This is obviously because most standard insurance companies dont provide vacant home insurance so they can’t profit from it – so why should they notify homeowners if it…pretty sad!


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