Homeowners options for the elderly

December 12th, 2012 by admin

By James E. Pittz, CPIA

Recently, I heard a story where a client had been paying the premiums on their parents’ home for the past 20 years. I thought that this was nice, the children looking out for and taking care of their parents. That’s when the other shoe dropped; the parents had been deceased all that time. So I thought, OK, so the child had been living in the home. Nope. The family had been using the home as a sort of “family hotel,” when someone came into town that’s where they would stay. This had gone on for 20 years! The premise had been kept up and someone had been living there on and off (mainly off). The family kept their parents’ homeowners insurance active the entire time, paying the premiums. A claim denial just lurking in the shadows.

The insurance carrier never knew because a claim had never been filed—the perfect insured; collecting premiums for 20 years without the worry of ever having to pay a claim, mainly due to the fact that arguably there was never any coverage in place.

This is a story we are starting to hear more and more. Either the named insured on a homeowners policy becomes elderly and has to live in a nursing home or, worse yet, passes away. The family does not know what to do, so they do nothing—just keep paying the premium.

Unfortunately, in these cases when either of these situations occurs, the homeowners policy coverage, in essence, ends.

The heart of the issue is the definition of “residence” premises.

11.     “Residence premises” means:

  1. The one-family dwelling where you reside;
  2. The two-, three- or four-family dwelling where you reside in at least one of the family units; or
  3. That part of any other building where you reside; and which is shown as the “residence premises” in the declarations.

    “Residence premises” also includes other structures and grounds at that location.

To fully understand this, we must go back and refer to who a “you” is

A. In this policy, “you” and “your” refer to the “named insured” shown in the declarations and the spouse if a resident of the same household. “We”, “us” and “our” refer to the company providing this insurance.

This impacts coverage for the dwelling, where Coverage A—Dwelling applies only to the dwelling on the “residence premises.”

It also impacts coverage for liability, where liability only applies to an “insured location.”

“Insured location” means:

  1. The “residence premises;”

After we review this we see that when an insured begins living in a nursing home, or anywhere else for that matter this homeowners policy ceases to cover that location listed on the declarations page since it is no longer their“residence premise.” This has been supported by New York Supreme Court case law “ Tower Insurance v. Amany Said and Ahmed Hassan” 2007.

One of the first underwriting guidelines that a carrier maintains for homeowners insurance is that it is “owner occupied.” When the named insured moves out, the dwelling ceases to be owner occupied, thus creating the reason for the claim denial.

So what can be done?
In many cases like these, the family wants to keep the house or dwelling. They do not want to be forced into the position of selling it. They may be holding it for someone who will be graduating from college shortly; it may turn out to be the vacation home for the family depending on its location or even renting it out. Whatever the scenario, they must change the policy form from a homeowners policy since it no longer meets the criteria.

Named insured
If the named insured is deceased, contact the agent or carrier and have them removed. Generally, a copy of the death certificate will suffice as evidence to remove or change. If husband and wife are listed on the deed and either of them passes away, there is no need to change the deed as right of survivorship benefit passes to the surviving spouse in this case. However, this is not the case for the homeowners policy. The named insured must be changed to reflect the survivor only. One reason is if there is a claim, the claim check will be made out to both names on the policy. In order to cash the check, one will have to prove executrix or executor of the estate, a hassle you do not want to have to go through. Also, what if only one spouse, the husband or wife, was listed and the party who was listed passes way? Again, another headache with a claim check that you do not want at a time when you do not need the headache.

Family trust
Many times with elderly family members, the family creates a trust and names a trustee for the account. The resident of the dwelling then obtains a life estate that allows them to continue to reside there. When this happens the homeowners policy can be put in the name of the trust with the trustee as an additional insured. You will need to attach endorsement—Residence Held in Trust 05 43. This may be attached when the dwelling has been titled to a personal trust. (If a policy is written in the name of the trust, then the persons residing in the dwelling may not be covered; the endorsement addresses this situation.)

Dwelling policy
The policy can be converted to a dwelling policy with an endorsement for premise liability—DL 24 11 Premises Liability (Non-owner Occupied Dwelling). It is important to remember that with a dwelling policy you must choose what coverages to endorse on (theft coverage, personal property coverage, etc.). This may be an easier route for the carrier to accept and write. However, if the plan is that the home will be used as a vacation home, proof of property maintenance could be required. This will ensure to the carrier that the dwelling is being cared for.

Homeowners policy
This is an option if the family wants to keep and also use the dwelling. This would be the case if it were in a desirable location. So, before you re-write the policy, who will be the named insured? In this option maybe a family trust or all siblings be listed as named insureds. In this case, you are going from Homeowners policy A to Homeowners policy B. The only real difference is again, the named insured. Will this become a second residence for another policyholder?

There are many questions that must be asked and answered when life decides to get in the way of living. 4/12