What Is Vacancy Clause Insurance, and Do I Need It?

If you're a real estate investor, landlord, or property manager, you're probably always looking for ways to save money on your properties. One way you can do that is by carefully choosing your insurance policy.

A vacancy clause (also called an unoccupied property clause) is a rider that can be added to your insurance policy and will exclude or limit coverage for certain types of damage while your property is vacant. 

In this article, we'll discuss what vacancy clause insurance is, what it covers, and how to decide whether or not you need it.

What Is Vacancy Clause Insurance, and What Does It Cover?

Vacancy clause insurance is a type of policy usually purchased by homeowners or landlords to protect their vacant or unoccupied property. It can be added as a rider to your standard insurance policy, but because most home and landlord policies do not cover these properties, it often must be bought as a separate policy.

For example, your property may be vacant for an extended period during tenant turnover, the time between one tenant leaving and you finding a new tenant. Or, perhaps you have a small multifamily property or an apartment building. 

If there is a large percentage of unoccupied units, your property could be deemed vacant. Should your property be damaged during this time, your standard insurance coverage usually will not pay for the repairs.

Instead, a vacancy clause rider or policy reimburses you for these damages. Most providers will cover fire and smoke damage, wind, hail, vandalism, and water damage—which are all similar to the risks covered in a standard policy. The circumstances differ, however, because the property is either unoccupied or vacant.

How Do I Know if I Need It, and How Much Should I Expect to Pay for Coverage?

With insurance, there’s a difference between vacant and unoccupied property. 

Unoccupied property is one where the resident is not living on the property for an extended period, but the contents, like furniture and appliances, are still in the house. A vacant property is one where the resident has moved out with all their belongings or contents. So basically, a vacant home has no residents or contents.

For commercial properties, such as apartment buildings, the rules are a bit different. Vacancy depends on the occupation rates of the entire building. Therefore, commercial properties are mostly considered vacant when at least 31% of the building's total square footage area is unoccupied.

Do you manage a vacation rental that usually has no visitors for a large part of the year? Do you own an empty second property that you're trying to sell or rent out? If your building is going to be unoccupied for longer than the terms stated in your standard policy, you may need vacancy clause insurance. Reach out to your insurance company as soon as possible.

Because vacancy clause insurance involves more risk, it’s usually pricier than regular coverage. Malicious mischief and perils such as theft, burglary, and vandalism are elevated in these types of properties. 

Furthermore, maintenance repairs—like pipe or sprinkler leakage—often go unnoticed for extended periods and result in costly damages. The price of vacancy clause insurance will also be contingent on your property's hazard level and the insurer's rate. Typically, this form of insurance costs 1.5 to 3 times more than standard coverage plans.

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What Happens If I Don’t Have Vacancy Clause Insurance and My Property Becomes Vacant Unexpectedly?

It’s crucial to read your policy's vacancy provisions clause as insurance companies state the allowed period for a property to remain vacant or unoccupied. The specific definitions will differ between insurance companies, with some setting the limits of vacancy between 30 to 60 days. If your insurer doesn't define clear vacancy timelines, they can interpret it however they want during a claim, which could work against you.

If your property is vacant for an extended period, there are steps you can take to protect it. These steps include making sure the house has contents, checking in regularly, and maintaining the property’s surroundings and appearance by mowing the lawn regularly and leaving lights on.

It’s important to talk to your insurance company. Your standard policy might have a clause for how long an empty property is covered, but you probably won't know exactly how long your property will be vacant.

Are There Other Types of Insurance I Should Consider in Addition to Vacancy Clause Insurance?

Besides your standard policy and vacancy clause insurance, you should consider other policies for extensive coverage, like flood, sewer backup, and law and ordinance. These are usually excluded from your standard policy. 

Whether your property is occupied or vacant, your insurer will not reimburse you for these damages. Adding these as endorsements to your coverage ensures you have comprehensive protection. 

How to Find Vacancy Clause Insurance

As a landlord, you may understand the importance of vacancy clause insurance for protecting a property that’s not currently rented. However, the process of finding and purchasing this insurance can be overwhelming. You may be wondering where to even begin searching for the right policy.

First, ask your current property insurance provider if they offer vacancy clause options, as it may be simpler to add it to an existing policy. Another option is to contact multiple insurance companies directly or work with a local insurance agent who can provide quotes and assistance in selecting the best policy for your needs.

A final option, and potentially the easiest and most convenient one, is to use an online insurance broker like Obie. Obie utilizes technology to streamline the insurance shopping process, making it hassle-free for clients like you to find and purchase the right coverage for your vacant property.

In the end, remember that regardless of how you go about finding vacancy clause insurance, securing this coverage is crucial in protecting yourself from potential losses during periods of vacancy.

Find the right policy for your property with Obie, a trusted online insurance broker featured in publications like Forbes, Fortune, and TechCrunch. Receive an instant quote by simply entering your property address here.