How to Obtain Homeowners Insurance on a Second Home

Experts say real estate is the best investment, particularly when the housing market is strong. Instead of investing in the stock market, where there’s a potential for loss, many investors choose to buy additional homes either to use for vacation or to rent out to others. There are important considerations before making the leap to secondary homeowner, particularly the extra expense and upkeep that will be required.

If you’re considering buying a second home, first check your homeowners' policy to see if it protects additional houses. Your current policy may, and if not, you might be able to extend your liability to cover at least one additional house. However, even in cases where you can, a second policy specific to the house is the safest option for protecting both the structure and contents. You can even use the same insurer for all of your homes.

If you’re looking for vacation home insurance, though, it’s important to understand that these properties are by their nature seen as riskier than primary homes. Even if you only plan to use it yourself, chances are it will be unoccupied most of the year, which leaves it open to issues like leaks and fires, not to mention burglaries. If it’s a vacation home, it can also tend to be in riskier areas like hurricane-prone coastlines and fire-prone mountainous areas. All of this additional risk can up the cost of premiums.

No matter what the policy, you should expect to pay more for a seasonal home insurance policy than your primary home. Nationwide applies a 20 percent increase for second homes, but State Farm only ups premiums by 10 percent. You’ll likely get a better deal if you stick with your primary insurer since many insurance companies will offer a discount if you have multiple policies. Whatever you do, though, don’t approach an insurance company for a policy and claim it’s for a primary home when it isn’t. If you ever have to file a claim, they’ll inevitably discover the truth, and you could be denied as a result.

There are ways you can save on second home insurance, though. In addition to having multiple policies, you may also get a discount if you have a full-time caretaker who lives in the home when you aren’t there. Having a security alarm can also save you, but you’ll probably pay more each month in subscription fees than you’ll save. The best way to keep costs low is to avoid having any claims.

An increasing number of people today are buying second homes to use as vacation rentals. Sites like Airbnb and VRBO make it easy to post photos and descriptions as well as manage reservations. A general seasonal home insurance policy won’t cover you in this case. Once you start making money off the people staying in your home, it’s considered a business and merits a policy specific to that. If you’re only loaning your home out occasionally to friends and family, though, this won’t be considered a business, and you can stick with your general second home policy.

Before you start renting out your property, call your insurance agent and discuss your options. If you only rent your property occasionally, you may be able to simply add a rider on your regular homeowners' insurance policy. However, if this will be a regular occurrence, you’ll need liability insurance to cover any personal injury incidents experienced on your property. You’ll also need the typical contents and structure coverage to protect against damage or loss. Lastly, you may need lost income insurance to cover the time you would be without renters following a disaster.

Vacation rentals aren’t the only way property owners can make money on their investment property. You can buy a property and charge someone monthly rent to live there. Your tenant will sign a lease just as he would if renting an apartment. In this lease, one of the terms should be that the renter understands you have no responsibility whatsoever for loss or damage to his items. Depending on the laws in your state, you may even be able to require it as a condition of the lease.

If you’re renting out your home, second home insurance will require a landlord policy, which will cover both your liability and damages to your home. Similar to vacation rental insurance, a landlord policy will offer protection if someone is injured on the property, whether it’s the renter or one of her guests. A landlord policy will also provide loss of income if your property is damaged and you can’t rent it out during the time you’re repairing or rebuilding.

Although vacation home insurance can add to the expense of a second home, you may get some tax breaks that will at least help a little. The IRS allows you to deduct the interest you pay on your home loans each year. You’ll be able to deduct interest on up to $375,000 worth of qualifying home loans for your first and second homes. This goes up to $750,000 if you’re married filing jointly.

Unfortunately, if your second home serves a business purpose, you’ll have to claim the income you generate on that property. You can rent your home out for up to 14 days each year and not claim the income, but after that, you’ll have to report it. You can offset that by claiming business-related expenses.

In addition to a seasonal home insurance policy, there are other upkeep considerations. When you have a second home, you’ll need to deal with the everyday maintenance tasks that come with keeping a home in good shape. This includes landscaping, pressure washing the exterior and keeping the additional home clean.

If your home is a rental, be prepared for the extra work that goes into maintaining such a property. The appliances are generally the responsibility of the homeowner, so if a refrigerator or dishwasher suddenly goes out, you’ll need to be able to have it repaired or replaced. This means having local service providers lined up who can help you on short notice.

As you set up your vacation home insurance, be aware that standard homeowners' insurance doesn’t cover all eventualities. If your property suffers an incident like a flood or sinkholes, for instance, your homeowners' policy won’t apply. Flood insurance is administered through a national program, and you’ll renew it once a year. If your property is at risk of sinkholes, you’ll need to check with insurers that offer it and make sure you meet the qualifications.

If you’re buying a second home, it may be worth checking into an umbrella policy, which can kick in to cover those things your other policy doesn’t. This is especially important if you’re renting out your home since there’s an additional liability there. If a tenant or vacation renter sues for injuries suffered on the property, and your main policy only covers the first $500,000, your umbrella policy can take care of the rest.