Occupancy

What is occupancy?

Occupancy is one of the most important pieces of information on a home insurance policy. Occupancy refers to who lives at the insured location, and whether they live there full- or part-time.

Insurance providers need to know the occupancy of any home that they insure, because different occupancy types carry vastly different levels of risk. For example, a lived-in single-family home is less likely to get broken into or vandalized than a vacant house.

Occupancy is such an important piece of information that insurance companies can void insurance contracts if the occupancy listed on the policy is incorrect. A change in occupancy is what’s known as a material change in insurance. A material change is one that’s significant enough to make an insurance policy void if the homeowner doesn’t report the change.

Always inform your home insurance provider if the occupancy of your home changes! If you’re buying a new home insurance policy, always tell your new home insurance provide the truth about how your home is occupied, otherwise your policy may be worthless in the event of a claim. That also means telling them if you won’t be moving into the home immediately upon taking possession of it.

Fortunately, changes in occupancy are rare. A child moving away for school isn’t an occupancy change, nor is the family taking off for vacation for a few weeks.

To get a better idea of what constitutes a change in occupancy, let’s look at the main occupancy categories. Each category has a different level of risk for insurance providers, and therefore different insurance premiums. This list is arranged from low risk to high-risk (low premiums to high premiums):

• Primary residence. Your primary residence is the home where you live most of the time. You might also see the term “principal residence,” which means the same thing. Primary residences usually have the lowest insurance premiums of all the occupancy types because the insurer assumes that there’s usually someone home to respond to issues quickly.

• Primary residence with tenants. If you rent out part of your primary home to tenants, it’s considered a different type of occupancy. Adding tenants to the situation usually increases premiums by a little bit, but your insurance company will probably be able to provide enhanced coverage for things like your rental income.

• Second homes. For people who own (or rent) at least one property in addition to their primary residence. Second homes are those that you (or your family members) live in on a part-time basis. Vacation homes are prime examples of second homes. This type of occupancy carries a higher premium; secondary homes are at higher risk of loss because they’re often empty, with no one there to respond to issues.

• Long term rentals. If you own a second home and you rent it out to long term tenants, it falls under this category of occupancy.

• Short term rentals. Second homes rented out to short-term tenants get their own category. This occupancy type includes homes listed on Airbnb or similar sites. Insurance companies define “short term” in different ways; Square One considers tenancies shorter than 6 months to be short term rentals.

• Home under construction or renovation. This category is for homes that are under construction, or under heavy renovation that made the occupants move out. They’re expensive to insure, and some insurance providers won’t insure this category at all. Homes under construction have no one living in them, so they’re prime targets for theft and vandalism.

• Vacant homes. The final category of occupancy is the one with no occupants at all. A vacant home is a home that all the occupants have moved out of, with no plans to return. A vacant home is different from an unoccupied home; we’ll go into more detail about this often-misunderstood concept in the next section.

What is the difference between vacant and unoccupied?

Vacant and unoccupied sound like they mean the same thing, but they’re quite different in the world of home insurance.

A vacant home is one that all the occupants have moved out of, with no plans to return. Or in the case of a newly acquired home, vacant means no one has moved into the home upon securing possession of it. An unoccupied home is one that the occupants have left, but that they plan to return to.

It’s a common misconception that if there’s furniture in the house, it’s not considered vacant. The presence of furniture isn’t a factor in vacancy; it’s all about the intent to return.

So, if you take off on holiday (even for months at a time) your home is unoccupied, but not vacant. As long as you plan to return, it will remain unoccupied. A vacation home is also not vacant during the off-season if the owner plans to return the following season.

Vacancy only kicks in when there’s no one living in a home, and it’s unclear when someone will move back in. Vacancy is most common when dealing with rental homes and homes under construction.

Rental homes are considered vacant if a tenant moves out, and there isn’t a new tenant ready to move in. If a home is untenanted, it’s considered vacant until a new tenant moves in.

Homes under construction have their own occupancy category (see the above section), so they aren’t technically vacant while they’re under construction. Once construction is complete, however, most insurance companies will consider the home vacant if no one moves in right away.

If your home becomes vacant, it’s important to notify your home insurance provider at once. If your home sits vacant for 30 days, and your insurer doesn’t know, you’ll lose your insurance coverage completely. Some insurers stretch this to 60 days, but in either case it’s best to inform your insurer right away about a vacant home (or any other change in occupancy, for that matter).

You don’t need to inform your home insurer if your home becomes unoccupied for short periods. Your insurer might have some requirements you need to fulfill while it’s unoccupied, though. Usually, you need to have someone periodically check in on the house while you’re away. You might also need to take measures like shutting off the water supply if you’re gone for an extended period, or make arrangements to ensure the heating is maintained during the winter. If you’re not sure what’s expected of you, check your home insurance policy wordings or get in touch with your provider.

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