When considering the purchase of a second home, one essential factor to think about is insurance. Whether you're looking at an idyllic beachside property or an elegant urban apartment— understanding current trends in insurance coverages will help protect your assets and provide peace of mind. Read on to learn about the most common areas for second-home locations throughout the United States and the prevailing trends in insurance coverage for each region. By arming yourself with this knowledge, you can be sure that your legal obligations and financial risks are considered wherever you choose to live.

Despite rising interest rates and a mildly deflated market, luxury second home purchases are still in high demand. However, insurance is becoming more difficult to obtain in many of the most popular locations. Homeowners in coastal areas, especially along Florida’s gulf coast, need help finding quality coverage due to the high risk of natural disasters. Florida has been significantly affected over the last few years due to constant hurricane and tropical storm damage. This has driven some insurance companies to the brink of collapse. Leading to thousands of canceled policies and significant (sometimes in excess of 100%) premium increases.

Recently, as a result of the nearly $50 billion in estimated damage caused by Hurricane Ian, many high-net-worth insurers have taken drastic measures to remain in business. This includes minimum premium thresholds, more stringent requirements for construction and a requirement for a portion of premium to come from less catastrophe-prone areas, such as additional out-of-state home and auto policies. Insurers are also taking a more detailed approach to underwriting auto insurance, including requirements for central station monitored burglar and fire alarms, vehicle recovery systems and storm plans for high-value automobiles. 

Meanwhile, multiple years of catastrophic wildfires in California have caused similar issues for homeowners looking for quality coverage. Areas with higher wildfire risk have seen their premiums rise to record highs. The zip codes that were most at risk saw policy cancellations go up by 61%.

Before deciding to purchase a second home, numerous considerations need to be taken into account. The age of the dwelling is an essential factor, and one will have to check if the roof and certain household systems have been updated. Many insurers will require roofs be completely replaced every 20 years, and heating, ventilation and air conditioning (HVAC) systems and water heaters be less than 10 years old. Further, should your home be located in a coastal region, you must consider certain mitigation features— like hurricane-rated impact windows or shutters, the method used to secure your roof and if your home is positively elevated. If you're looking for a mountain getaway home, you'll want to ensure it has access to a fire department/fire hydrant, and the vegetation around the perimeter is properly trimmed— these can be requirements from some insurers. Depending on your chosen location for a second home, there are likely many more factors that need consideration. The items mentioned above along with this list should set you in the right direction when considering all the possible details impacting such an important decision.

If you move forward with your purchase of a second home, consider implementing various risk management strategies. It is worth the investment upfront to reduce the risk of a catastrophe later on. Here are a few ideas of where to start:

  • Install a water leak detection system– Did you know that water losses are still the number one loss paid out by home insurance carriers? Even the smallest hidden plumbing and appliance leaks can add up to thousands of dollars in property damage and repair costs. A water leak detection system guards against surprises by alerting homeowners immediately about any plumbing anomalies that occur at their second residence. This preemptive strategy provides peace of mind knowing that you'll be able to act quickly to protect your investment from further damage, as well as identify potential problems before they worsen or multiply.
  • Install a backup generator– Having a backup generator for a second home is an invaluable resource in the event of a power outage. It can help protect valuable items like refrigerators, heaters and air conditioners from going out of order due to power outages. Moreover, it is also helpful in preventing irreparable damage to expensive electronics and preserving certain high-value collectibles, such as wine collections.
  • Install fire safety equipment– Fire safety is critical for any residence, and second homes are no exception. Be sure to install smoke detectors, fire extinguishers and carbon monoxide detectors throughout the residence. It's also important to check these devices regularly. In wildfire-prone regions, installing flame retardants on your roof, adding gutter guards and trimming the defensible space around your home will be requirements of many insurers.
  • Install a security system– It’s recommended to install a security system monitored by a central station for fires and burglaries. Consider additional precautions, such as cellular back-up and cameras both inside and outside of the house. Some systems also provide remote access so that you can check up on your house from anywhere via smartphone or computer.
  • Hire a local caretaker or home watch service– Depending on the location of your second home, it may not be possible for you to regularly visit. A local caretaker can make trips to check up on your house. This will ensure not only peace of mind that your home will remain safe and secure, but that someone will be available to handle local vendors, such as landscapers, housekeepers and other service providers to keep your home running smoothly in preparation for your next arrival. Home watch services are popping up all over areas where vacation homes are most popular. Many times, these are owned by a retired neighbor who's willing to check in on your home on a pre-designed schedule, flushing toilets, checking for general disrepair, pests or other disturbances to help you manage the risk of being away.

If you plan to rent your second home via short-term rental websites, such as VRBO/Airbnb, discuss this with your insurance agent beforehand— this type of practice may not be covered by your current insurer. Carriers are wary of allowing short-term rental situations and you will most likely need a different insurance policy to fully protect you in these situations. While short-term vacation rental companies (VRBO/Airbnb) may provide some degree of protection for property owners, it's important to remember that this isn't the same as insurance. These companies don't know about your financial status or overall coverage needs— you could be left exposed if their policies don't match up with yours regarding liability limits and types of insurance.

For example, one couple faced their worst fear when an Airbnb guest accidentally burned down their second home. The estimated cost of the rebuild was $1.4 million. The bigger challenge, however, was getting the vacation rental company to reimburse the property owner under their protection policy— a process that took a little over 13 months to settle.

Experiencing a claim with improper insurance can be financially devastating and cause you an enormous amount of stress. It is critical to choose a specialized insurance broker who understands the specific issues affecting high-net-worth families. They will work with you to create a customized insurance program addressing your specific needs. This would include partnering with a specialty high-net-worth insurer that understands the real value and significance of your assets and the liabilities associated with them.

For an insurance and risk management consultation, contact Gallagher at [email protected].