Why vacation homes are becoming a major blind spot for advisors

Vacation properties are especially common among older, wealthier individuals. In fact, there are roughly 6.2 million second homes in the U.S., according to the latest data from the National Association of Home Builders.

For advisors, it’s all too easy to focus on a client’s primary residence and overlook their vacation or second home, which is often treated as a supplement instead of a new entity that requires its own risk management analysis.

“Insured homeowners shouldn’t expect an automatic extension of their existing homeowners policy to provide meaningful coverage to a second home with a different set of exposures,” said Brad Spurgeon, owner and CEO of Brad Spurgeon Insurance Agency Inc.

By prioritizing a client’s vacation home as much as their primary home, advisors can help clients identify coverage gaps, account for unique risks, and ensure they’re adequately protected before a loss occurs.

How a second home can change insurance needs

Almost always, a vacation home alters a client’s overall risk profile. It usually requires a more comprehensive review of not only their current insurance coverage, but their risk management strategy.

Depending on the location of the second property, a client may have different access to insurance markets, separate deductibles for wind or hurricane losses, or a greater need for catastrophe-specific coverage and mitigation measures.

“Properties in coastal, mountain or wildfire areas, for example, may face catastrophe exposures that differ significantly from those at a homeowner's primary residence,” explained Diane Delaney, executive director at Private Risk Management Association.

Despite this, many advisors have not worked with their clients to implement the same level of risk management that they did for their primary home.

Common coverage gaps for vacation homeowners

When a vacation home is used as a short-term rental, it can create a significant coverage gap.

“Renting out a beach house on Airbnb or VRBO for a few weeks each year will typically invalidate a standard homeowners policy during the rental days,” Spurgeon explained.

If a family member or vacation renter slips and falls or the property is otherwise damaged during a rental period, owners are often surprised to learn their policy does not cover occasional rental uses.

Vacation homeowners in coastal regions may also need separate windstorm and flood coverage, depending on their location and existing homeowners policy.

“If a home is left vacant for months at a time in a hurricane-prone area along the Gulf Coast, there can be significant exposure if one or more of those three policies expires or has inadequate limits,” Spurgeon noted.

Questions to ask during vacation home reviews

Advisors should take the time to meet with their clients annually to discuss their vacation home and uncover any hidden risks with their home insurance policy.

Spurgeon recommends questions like: Has the home been rented since the policy renewal date? Have any additions or renovations occurred that could increase the replacement cost? And was the flood zone rechecked against the latest FEMA map?

Other important questions include: Have you installed any additional security measures to protect the home? Who has access to the home? And does anyone check on the property when it’s vacant?

Combined, these questions provide advisors with a clearer picture of how clients are using their vacation homes and whether their current coverage needs to be adjusted.

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