What happens if your home insurance laps while doing a remodel?

Question

I have a home we purchased, and we have been doing a remodel on it. We are so close to being done and will move in 2.5 weeks from now. Insurance company tells me it will laps this week unless we provide evidence that the house is not vacant. We do have our Insurance & Tax payments rolled into our mortgage payment, not separate. So I have several questions:

1. What happens if the insurance laps?

2. I assume that having insurance is a requirement of most mortgages?

3. Do you think it's worth risking not having insurance for 2-3 weeks, then reinstating our policy once we move in?

What would y'all recommend here?

Tim Herman · Answer

@Mason Blake if the insurance lapses, the mortgage company will put on insurance that protects their investment but doesn't protect you from liability. High dollar cost. You will be required to pay for it or the mortgage company can foreclose. If the policy lapses many insurance companies are not willing to write a policy on the property. My recommendation is to move in.

John Mocker · Answer

Mason,

I would not go without coverage.  your entire investment (other than land value) is a risk then from a fire, vandalism, windstorm, etc.   Further, you would have no Liability coverage if someone is injured at the property.

Have your agent check for what breaks the Vacancy (if you have furniture there and someone sleeps there multiple days in a week would that do it).  Perhaps there is a way to get through the 2 weeks until move in.  If not, perhaps there is a different company that will insure you.  Even if they are more per year, its better than going unprotected.

Luciano A. · Answer

@Mason Blake

As some mentioned a Builder's Risk policy is recommended when you are rehabbing or the property is going to be empty for more than 30 days. Insurance is to protect your investment. Taking a risk for two weeks is like driving without insurance and hoping all goes well. Also having the wrong type of insurance is like no insurance at all. I would call your insurance agent and ask to get the builder policy in place. This will protect you and won't have any issues if something were to happen in the two weeks you are finishing up. If something were to happen and the insurance adjuster sees the house was being rehabbed your claim can be denied.

If your policy lapses that are not good as a lender-placed policy is to protect their interest thus you are still on the hook for liability and your content. And their premiums are hefty.

Best of luck

John Mocker · Answer

Mason,

The proper policy would most likely have been a Renovation Builders Risk policy.  I have seen some situations where a company used a vacant dwelling policy and endorsed it for renovation.  Rarely will a company continue the homeowners policy knowing that it will be vacant under renovation.

In most Homeowners policy there is a vacancy clause.  If the property is vacant for a specified number of days (30 - 60 days) the clause will eliminate or reduce certain coverage (water damage, vandalism, etc.).

William Arrington · Answer

Legally speaking there is a difference between vacant and unoccupied.  Case law defines the term vacant as “completely empty” – meaning a lack of both people and personal property. Stated another way, vacancy can also be defined as “substantially empty of personal property necessary to sustain normal occupancy.” The term unoccupied means that the property has been left in a state where the property still contains all items and possessions as if the owners were to return at any time.

Move items into the house.  Make sure one of those is a bed and forward your mail.  I am guessing you are there multiple times a week so this would probably work.  I am not a lawyer though so make sure you do your due diligence.

Todd Rasmussen · Answer

Tell your insurance company you are moving in in 2 weeks and see what they say. I'd be surprised if you couldn't get 2 weeks out of an underwriter...

Andy Webb · Answer

We have sometimes added a vacancy endorsement if it looks like our rehab is going long.  Usually a 6-month or 12-month premium, with the balance pro-rated and refunded once the house is occupied and we cancel the vacancy endorsement.

Joe Splitrock · Answer

Standard policies generally do not cover vacant properties under rehab. What does your insurance company want as proof of occupancy? Can you put a bed in there and start sleeping there? Do they actually want to get inside the property and inspect?

Getting insurance to cover renovation is probably the best option. Talk to your insurance agent about what is required to properly cover the property. What you want to avoid is having your coverage dropped. Being dropped by insurance is never a good thing.

Tim Herman · Answer

@Mason Blake my take is their is no break on insurance on the property so it should be insurable. Talk to an independent agent and have them shop policies. They might have a policy that can insure renovations and convert to a landlord policy.

Mason Blake · Answer

Yikes... this makes me worried we didn't get renovation insurance overall. We relied on our homeowners insurance policy.

Since our current homeowners insurance does not cover renovations, it is going to lapse unless we can prove we are moved in and complete, but we're 2-3 weeks away. In this case, as long as we have home renovation insurance - does this mitigate the 'uninsurable' aspect you mentioned, @Tim Herman?

What happens if your home insurance laps while doing a remodel?

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