Life can bring changes, including the occupancy or vacancy of a property you own.  Though insurance may seem like a minor detail that will pay a claim because you paid the premium, it is essential to remember that insurance is a contract with set definitions, conditions, and exclusions. If the property definition changes based on its occupancy or vacancy, so may the coverage.  Here are a few tips to consider should you find yourself in this situation.

How vacancy and occupancy can impact insurance:

Common examples of occupancy changes include:

• You decide to  rent out your home permanently
• Your tenant moves out, and the property is vacant
• Your mother passes, leaving her house empty

Why who lives in your home can matter to an insurance company?

When you have a homeowner's insurance policy, the carrier agrees to insure the "residence premises."  This is defined in most policies as a dwelling listed on the policy and where you reside.  If you do not live in the dwelling insured, your property is not meeting the residence premises' definition and hence up for question on whether there would be coverage in a claim.

The reason for the residence premises definition most likely comes down to the probability of a claim.  It should not be surprising that homes that are not owner-occupied are more likely to have a claim than if an owner lives there.  If a house is vacant, it could be days, even weeks, before a burst pipe is discovered.  If a home is tenant-occupied, why bother fixing or even mentioning the roof tiles that are lifting?

Why vacancy and occupancy can be an issue with rental properties?

Whether you are a landlord of a single-family home or a multi-unit residential complex, landlord insurance is written based on the fact that the property, or a majority of the property, is occupied by tenants. 

Depending on the carrier, it is considered reasonable for short stints of vacancy should one tenant move out, and another move in, but check with the company to be sure you are not exceeding what is considered reasonable. 

It would most likely be considered differently if a tenant moves out and there is no intention of replacing them as perhaps you want to renovate or sell the property.  It is strongly advised that you consult with an insurance professional should you find yourself in this situation. 

How do I cover my property if the occupancy changes or is vacant?

The first thing to do is to speak with the insurance professional insuring the property.  Let them know the details of your plan, such as:

• How long do you think the change will last?
• How often are you checking on the property?
• How will the heat be maintained and monitored?
• Will you hire a property manager?

Though insurance has become highly automated, underwriters have some leeway and ability to make judgments.  It may be different if you live next door to a property you own and check on it daily vs. the property being far away with no plan to have anyone look after it.

If the company decides to cancel your policy, there usually are other options.  If renting out your property, you can get a landlord's policy, also known as a dwelling fire policy or a business owner's policy. If the property is vacant, you can get a vacant dwelling policy.  These policies will most likely be more expensive, but better to pay premium for a policy that can actually cover a claim versus paying premium on a policy that won't.

What if I don't tell my insurance company about a change to occupancy or vacancy?

If you decide not to tell your insurance company of any occupancy changes and take a risk, you really are taking a risk.  There may be language within the policy itself, indicating that there is no coverage for specific losses like freezing of pipes or heating systems if heat is not maintained or water shut off.  (Even if you maintain the heat, what if the power were to go out for several days?) 

There may also not be coverage for vandalism or malicious mischief if the dwelling has been vacant for more than 30 days immediately before a loss.  

In short, an insurance policy is a contract between parties: you and the insurance company.  Making sure you understand the terms of this contract, or at least where to go to get help understanding, is the best way to protect your property.