When you're thinking about buying a vacation home one factor you cannot afford to overlook is homeowner's insurance. Because rates in some places have skyrocketed lately, the cost of homeowners insurance may determine in whether your new vacation home will be financially profitable -- or even feasible.
Because of Hurricane Katrina, insurance rates have soared in certain coastal areas. Unfortunately those coastal areas are just the sort of place that people are likely to be drawn for a vacation home.
You'll probably already be trying to buy insurance when you buy your vacation home, especially if you are using a mortgage. (Remarkably, one-quarter of vacation home buyers can pay with cash, according to a vacation home report by the National Association of Realtors.) If you don't live in the area, be sure to check out the general insurance climate. How much have rates gone up in the last few years? Have any of the big insurers pulled out of the state or weakened coverage?
According to the Insurance Information Institute, the average homeowner insurance premium was $481 in 1998 but was up to $835 last year. They expect it to rise to $868 in 2007. In 2004, Texas was the most expensive state with premiums averaging $1,362, followed by Louisiana at $1,074, Oklahoma at $991, Florida at $929 and Mississippi at $902. That was the latest year of complete figures and rates have ballooned since them for some of these most expensive states because of hurricane fears.
"We're really not finding you can't find it, it's just a little more difficult," says Pat Vredevoogd Combs, president of the National Association of Realtors. She says that states with mountain getaways are not affected. So, where you buy your vacation home will determine how challenging your vacation home insurance process will be.
Homeowners in a few areas are having trouble finding any company at all to insure their vacation homes. Insurers have been backing out of areas that are most prone to damage, especially from a big coastal storm. Unfortunately, coastal areas are among the most desirable locations for vacation home destinations. In February, 2007, State Farm, the nation's largest insurer announced it would no longer write new homeowner policies in Mississippi. All State has cut back its insurance in Mississippi, Louisiana, Florida and Texas.
Vredevoogd Combs says that her organization is pushing for insurance companies to write homeowners insurance policies if they do other kinds of business in a state.
Some states are trying to force insurance companies to offer vacation home insurance policies. In Louisiana, for example, one state Rep. Ken Odinet introduced a bill that will push insurers out of other lines of business in a parish if they pull homeowner's coverage there.