Many people dream of one day owning a vacation home. The idea of having a place to get away from it all is incredibly inviting, but not many people realize that owning a vacation home can be much more expensive than owning a primary residence. Insuring your dream house on the water (or by the slopes… or next to the course) can be an expensive proposition.
If you’re looking into buying a second property as your vacation home, here’s what you need to know about insuring it.
Higher insurance costs
Your insurance costs will almost always be higher at a vacation home than they would be at a comparable permanent residence. There are two major reasons for this. 1. You won’t be in the house for long periods of time, and insurers are leery about covering an empty house. 2. Vacation homes tend to be in areas that are either rural, and far removed from fire stations and other emergency services, or by the water, adding to the likelihood of weather damage.
In addition, vacation homes located on or near water will need flood insurance, which is sold separately from typical homeowners insurance policies. The price of this added insurance policy, on top of the more expensive basic policy, can be overwhelming to new vacation home owners.
Limited personal property coverage
The personal property that you keep at your vacation home may not be entirely covered by your primary homeowners insurance policy. While most homeowners policies offer limited coverage of your stuff anywhere in the world, it’s important to remember that the operative words are “limited coverage.” If you have your vacation home completely furnished, from art on the walls to rugs on the floor, you may not be covered for all damage in the event of a fire or other catastrophe.
In addition to flood insurance, it may be a good idea to invest in a dwelling fire policy. This type of insurance policy is specifically created for secondary homes, in that it covers both the dwelling and your personal property.
You might need to increase your liability coverage by purchasing an umbrella policy. Your primary homeowners insurance does provide you with liability coverage at your vacation home, but that coverage may not be enough, particularly if you have guests regularly coming to visit. If one of your guests were to injure him/herself, or if they were to cause damage to a neighbor’s property when taking out your boat, for example, you might find that your insurance doesn’t cover all of the expenses.
Umbrella policies can help to protect you against lawsuits, which might otherwise wipe out your savings. While umbrella policies are not particularly expensive — $150 to $300 per year can buy you about $1 million worth of liability insurance — it’s still an expense that you need to add into your vacation home calculations.
The Bottom Line
Before jumping into buying that vacation home, make sure you’re completely clear on what you’ll be spending in carrying costs each year. Though insuring (and maintaining) that second home can cost a pretty penny, it’s a necessary part of your vacation home budget.
Do you own a vacation home? How do you insure it?