The insurance business is based on risk. Like any other insurance, your homeowner's premiums are determined by how likely it is that your home will suffer an insurance event. This in turn depends on a number of factors, such as where you live, the age and condition of your home and whether or not it is occupied.
A foreclosed home is simply one that reverts to the ownership of the lender due to the borrower's failure to pay his mortgage. They are sold in an "as is" condition. According to "Time," it's not uncommon for evicted homeowners to take their anger out on the house, leaving it in terrible condition. Homes in poor condition cost more to insure because there is a significantly higher risk of something going wrong, such as water damage from a leaking roof or fire damage from a defective heating system.
Foreclosed properties sit empty for a significant period of time before someone buys them -- 195 days on average, according to Bankrate. The longer your house has been empty, the higher your homeowner's insurance premiums are likely to be. Vacancy is a key risk factor for insurance companies. Vacant homes suffer from a general lack of maintenance, and unattended mechanicals run the risk of major deterioration that can result in significant damage. This is a particular concern with older homes, which might need a specialist insurance product simply by virtue of the home being old.
Vacant Property Insurance
If you are not going to live in the property immediately, you will probably not be able to take out standard homeowner's insurance. According to the Better Business Bureau, none of the big insurance carriers like Farmers, Allstate, Travelers and State Farm will issue policies on vacant properties unless they will be occupied within the next thirty days. Existing policies typically cancel as soon as an occupied home becomes vacant. The reason for this is simple: Vacant homes are at greater risk of theft, arson and water leaks. If you are not occupying your home, you will need a vacant dwelling policy. This probably won't cover all risks -- flood and theft are typical exclusions -- and you can expect the premium to be anywhere between 30 and 200 percent higher than a standard homeowner's policy, depending on your other risk factors.
If your home is empty because you are carrying out major rehabilitation works, you will need a specialist insurance product. A "builder's risk" policy covers your home during the renovation period. Premiums typically start low, and increase as you progress with the work and add value to your home. Once you've completed the work and moved in, you can convert your insurance to one of the standard homeowner's policies. In the absence of other risk factors, usual rates should then apply, assuming that you have carried out the rehabilitation to building code standards.
- Troy Insurance Group: Insuring Vacant and Actively for Sale Properties
- Time: Want to Buy a Foreclosure? Here’s What You Need to Know
- Bankrate: Home insurance for a foreclosure fixer-upper
- Better Business Bureau: Homeowner's Insurance
- National Association of Insurance Commissioners Press Release via Cision PR Newswire. "Vacant Homes Pose Insurance Risks." Accessed Oct. 26, 2020.
- HHInsurance.com. "What If My Home Is Vacant Or Unoccupied?" Accessed Oct. 26, 2020.
- Foremost Insurance. "Vacant Home Insurance." Accessed Oct. 26, 2020.
- American Modern. "Vacant Property Details." Accessed Oct. 26, 2020.
- Insurance Information Institute. "A Vacant Home Still Needs Insurance." Accessed Oct. 26, 2020.
- State Farm. "Ways to protect your vacant house after moving." Accessed Oct. 26, 2020.
- Allstate. "What Does Landlord Insurance Cover?" Accessed Oct. 26, 2020.
Jayne Thompson earned an LLB in Law and Business Administration from the University of Birmingham and an LLM in International Law from the University of East London. She practiced in various “big law” firms before launching a career as a commercial writer. Her work has appeared on numerous financial blogs including Wealth Soup and Synchrony. Find her at www.whiterosecopywriting.com.