Insuring second homes overseas can be tricky. After all, you're navigating other countries' local laws, languages and insurance contracts. Many countries' insurance operations are subject to local jurisdictions, making it especially tricky.
And that's not all. Factoring in political and natural catastrophe risks can be complex.
"Exotic locales are covered differently than mature insurance markets," says Jim Fiske, a marketing manager for Chubb Personal Insurance. "And a lot depends on the country's stability, such as some places in South America."
For example, countries like England or Singapore with long histories of property insurance are much easier than, say, China or Panama.
But don't forgo your dream home. There are ways to sail through the process, and they hinge on doing extra homework: researching local insurance laws, carefully reading insurance contracts and knowing your rebuild costs.
Finding the right insurance company is the first hurdle. Many U.S. insurers don't insure homes overseas. "Most of them are restricted to the U.S. and its territories and Canada," says Fiske.
So it pays to go with an international insurance company. Chartis, part of AIG, offers homeowners insurance in several countries. And Chubb offers a network of insurance contacts on the ground. Lots of insurance companies based in the United Kingdom also have expertise in overseas home insurance. The Association of British Insurers can help you locate one.
"Insurance is going to vary from region to region," says Claire Wilkinson, vice president of global issues at the Insurance Information Institute. "Watch out for gaps in coverage. The last thing you want is to be underinsured."
Here are five tips for smoothing a potentially bumpy process.
Research local laws
In Europe and the Caribbean, for example, insurance carriers must be domestic. In that case, consider working with an insurer based in the U.K. such as Lloyd's of London, which offers specialty insurance in more than 200 countries. "In some cases, you can get short-term insurance contracts through Lloyd's," says Fiske. "Some insurance companies will issue policies that aren't in compliance with local laws. Are they going to pay?"
Ask your real estate broker for insurance referrals
Real estate brokers are well-motivated, says Fiske. "They want to service you and connect the dots. And they're familiar with insurance laws."
Know your ability to get coverage
Overseas insurance contracts vary widely. They aren't standardized and prices also vary. "You have to scrutinize the contract," says Fiske.
In exotic locales, even more scrutiny is necessary. How will claims be settled? What's the exposure to natural disasters, such as typhoons and floods?
You'll also want to understand how your insurer will pay claims, such as whether you get cash value or replacement value, says Fiske. "That should be clearly articulated." Also, find out if there's adequate liability in case a guest is injured.
Watch for exclusions and limitations
Prudent insurers will want to know how often you're at your home and who will look after the home when you're not there, says Fiske.
For example, are you going to rent your second home? How often will you occupy it? What protective measures are you taking? Some policies state that coverage is void if the second home is unoccupied for more than 30 days, or they may want someone to visit regularly.
And insurers may see a bigger risk of property theft. Personal property may be included in your U.S. policy, however, so avoid policy duplication.
"Tailor coverage to make sure it's adequate," says Wilkinson. "You may have some coverage from your traveler's insurance."
Pinpoint accurate rebuild costs
Insuring your home at the market value can be a mistake, Chubb says. Historic properties in Europe are hardest to estimate rebuild costs. But it's your job to get an accurate rebuild quote.
"The broker should have insight into the construction cost," says Fiske. Another option is consulting an appraisal service.