Vacant Home Insurace: Be Careful What you are Buying

A big difference in the quality of policies is the difference between a policy that pays on a actual cash value basis "ACV" and one that pays on a replacement cost basis. ACV is defined as replacement cost at the time of loss minus physical depreciation. Replacement cost is the amount it would cost to replace the property at the prices in effect on the date of losss. Depreciation is the cost of wear and tear on the property.

A policy that pays on a replacement cost basis will replace damaged property wtih like kind and quality without taking into account depreciation, and is therefor superior.

A policy may also call for losses to be paid on a functional replacement cost basis. Functional replacement cost is just an alternative form of valuation of property that is used in some insurance policies. It is used when the original insured property can be replaced with a functionally equivalent property, but not physically idential, at a lower cost. This is a step up from ACV but not as good as a full replacement cost policy.

Most vacant homeowners (or vacant dwelling) policies are ACV and the buyer must be wary.

Don't let your kid's neighbor housesit without the proper insurance

Two years ago, my husband's job took him on a temporary assignment of 5 months to Prague to finish up a large computer project for the Czech government. Of course it was the opportunity of a lifetime to go with him and I figured a way to take leave from my job (...no loss if they fired me anyway) to join him in this amazing city, which was untouched by the destruction left behind in WWII.

Siteseeing aside, we asked the 20 year old son of a neighbor to "housesit" while we were away. What's the worst that can happen, spilled beer? We felt better withsome living in the house and we could avoid that expensive vacant home insurance, or so we thought. Because we had someone to stay in the house we had no idea we would not rely on our current homeowners insurance policy which was paid up until the end of the year.

While we were away (in the 4th month) a large tulip poplar tree fell on the house during a windstorm. Jason acted quickly to get the hole repaired using the credit card we had left him, but I had to fly home to see to the contractor arrangments etc. The claim we submitted to the insurance company for over $40,000 was totally denied because they told us we did not have the right insurance on the house. We had needed to write a special policy why we were away called a landlord tenant policy (also called a tenant boarder policy).

As you can guess, we had no idea we needed to do this and didn't even think to call our agent. It was a total disater and all the extra money my husband made by taking the overseas assignment quickly was eaten up in this massive repair.

Parent in Nursing Home Don't forget the Vacant Home Insurance

When we recently put mom and pop into the Menonite Home in Lancaster PA, the house in East Petersburg was sitting empty for several months while we decided what to do with it and while we were selling the furniture and giving other items away to family and charity.

A friend who is a real estate agent informed us that the home was probably without insurance coverage because it had been sitting empty for so long. We called our agent, and to our horror the house would have been totally exposed if there was a total loss because the house was no longer being lived in.

We acted quickly and had to find another carrier that would take the vacant homeowners insurance risk but we had no idea that the house was sitting without any insurance coverage because we knew the policy was paid in full for the year. A major claim like a fire would have cost us almost $350,000.

Lesson learned.