Empty properties present more risk to insurers than occupied ones. Without a homeowner, property manager, or tenant present, a property is more vulnerable to theft, vandalism, fire or flood damage, and damage caused by squatters. In everyday life, we use the words “vacant” and “unoccupied” to refer to empty properties, but this is not the case when it comes to insurance coverage — and understanding the difference is important.
The law defines “vacant,” as “completely empty,” devoid of all people, personal items, and property. An example of a vacant property would be an unfurnished rental property in-between tenants. As you can imagine, vacant properties have a greater chance of damage and theft. Most standard home insurance policies contain vacancy, not unoccupancy, exclusions. This means that property owners would not be covered for things like vandalism or theft under their basic insurance while it is left vacant. Protecting a vacant property requires a separate policy, which is more costly than standard insurance due to the increased risk.
On the other hand, an “unoccupied” property is one which has been left in a state where all items and possessions remain, as if owners were to return at any time. In order for a property to be considered unoccupied, there must be basic furniture, working appliances, and cooking utensils — enough to show that someone lives there. Policies typically cover unoccupied properties for 30-60 days. If a property remains unoccupied for longer, additional insurance might be required.
What About Commercial Properties?
COVID-19 has led to widespread commercial property vacancies, making it even more important to understand commercial insurance vacancy clauses. A building is considered vacant when less than 31% of its total square footage is occupied. Standard commercial property policies exclude vandalism, water damage, theft, and more when a building is vacant for more than 60 days. Unoccupied commercial property insurance policies are also limited and include stringent security requirements. Bear in mind that the specifics of coverage varies from policy to policy and reading the fine print is vital.
The underlying theme with vacant and unoccupied commercial properties is that they are full of risks and therefore, unattractive to insurers. The inherent risks of an empty commercial building make it essential to secure coverage, but also challenging to obtain insurance.
Minimizing the Risks of an Empty Property
Property owners do not want a costly claim on their hands, let alone one without any insurance behind them. If a property owner anticipates an extended period of vacancy and inoccupancy, it is a good idea to speak to an agent. Insurance companies typically offer permits or endorsements to meet these unique needs. Insurance coverage for an unoccupied property is less expensive and easier to come by than insurance for a vacant one, but both vacant property and unoccupied property insurance are more expensive than traditional property insurance. As is the case with other forms of coverage, it is crucial that clients are honest and transparent throughout the purchasing process, both to ensure that adequate coverage is obtained and they are not barred from purchasing insurance in the future due to dishonesty.