By Marcus Oyelaran · Insurance & Risk
The insurance broker your conveyancing lawyer introduced you to was very helpful. She walked you through the standard buildings and contents policy, noted the premium was €1,340 per year, and the paperwork was signed two weeks before completion. What she did not walk you through — because it is buried in schedule 3B of a 78-page document — is that the policy excludes flooding, excludes storm damage if the storm is named, excludes loss of rental income, and will be rendered void if the property is unoccupied for more than 45 consecutive days.
You own a villa in the Algarve. It will be empty from September to May. You have, in effect, bought cover that covers very little.
The Named-Storm Deductible Trap
In the Caribbean, Florida, and the Gulf Coast of Mexico, most standard homeowners policies apply a named-storm or hurricane deductible that is expressed as a percentage of the dwelling value — not a fixed cash amount. A 2% deductible on a $600,000 home is $12,000 out of pocket before the insurer contributes a cent. Some policies reach 5% or 10%, meaning the owner absorbs the first $30,000–$60,000 of every hurricane claim.
The mechanism emerged after Hurricane Andrew (1992) made Florida property policies uneconomical for insurers. Named-storm deductibles are now standard across 19 US states plus most Caribbean territories. They apply per event, not per year, meaning a season with two landfalling hurricanes could trigger two large deductibles on a single property.
For a Caribbean villa generating $48,000 gross rental per year, a $30,000 deductible represents more than seven months of income absorbed before any payout. Holiday-home buyers accustomed to European insurance — where deductibles of €150–€500 are typical — routinely underestimate this exposure.
Blanket Flood Exclusions
Most private property policies globally exclude flood damage as a standard clause. In the United States, flood cover requires a separate policy under the National Flood Insurance Program (NFIP) or a private carrier — at additional annual premiums of $1,500–$8,000 depending on flood-zone designation.
The complication for holiday-home buyers is that many desirable coastal properties in Florida, the Carolinas, and the Gulf Coast sit in FEMA Special Flood Hazard Areas (SFHA), requiring mandatory flood insurance as a condition of any federally backed mortgage. Cash buyers are exempt from this requirement — and many skip the cover entirely, only to discover the exclusion during a claim.
In Europe, flood cover is generally included in comprehensive home policies (France, Germany, the Netherlands), but Portugal, Spain, and Italy's standard policies exclude flash flooding caused by storm drains. The 2023 Valencia floods — which destroyed over 2,400 homes — exposed how many owners discovered this clause only after the water had receded.
Wildfire Non-Renewal and the Insurer of Last Resort
In California, Colorado, Oregon, and increasingly parts of southern Spain and southern France, private insurers have begun withdrawing from high-risk wildfire areas entirely. When a major insurer non-renews a policy, the homeowner is typically moved onto the state's FAIR plan or equivalent insurer-of-last-resort scheme — a plan offering narrower cover at higher cost.
California's FAIR Plan, for example, covers the dwelling structure but does not cover liability, personal property, loss of use, or theft. An owner who rents the property must purchase additional wrap-around cover — often at 40–60% above what the original policy cost. Several counties in the Sierra Nevada foothills saw private insurer availability drop from 15 carriers to 2 between 2021 and 2025.
In Mallorca and the Costa Brava, Spanish insurers have begun applying wildfire surcharges of 20–35% for properties within 500 metres of classified forest zones. Holiday-home buyers viewing plots in these areas should obtain an insurance quote before committing to purchase, not after. It is not uncommon for buyers to discover cover is unavailable at any price for a specific plot.
Rental Income Loss Coverage
Standard home policies do not cover loss of rental income — it requires an explicit endorsement. In practice, fewer than a third of holiday-home buyers add this endorsement, meaning a hurricane, fire, or flood that makes the property uninhabitable for six months generates no compensation for the bookings cancelled.
A realistic worked example: a 3-bed villa in the Florida Keys generating $4,800 per week occupancy from June to October (20 weeks, 70% occupancy = $67,200 gross annual income). A Category 3 hurricane causing roof and interior damage requires six months to repair. Without rental income cover, the owner loses $33,600 of income and still faces the named-storm deductible out of pocket. With it — at an additional $480–$800 per year — the income replacement would be covered.
The endorsement limit matters: most insurers cap rental income replacement at 12 months of declared annual income, and some require the income to be formally declared on a short-term rental platform (Airbnb, VRBO) to validate the claim. Cash-in-hand bookings are uninsurable under these clauses.
The Vacancy Clause
Almost all property policies contain a vacancy clause: if the property is unoccupied for more than a defined period — commonly 30, 45, or 60 consecutive days — certain coverages are suspended. Vandalism, pipe damage, and in some cases fire are excluded during the vacancy period.
For a holiday home empty from October to April — six months — the clause potentially voids five months of cover mid-year. The solution is an explicit vacancy endorsement, which extends full cover for properties known to be seasonally unoccupied. These endorsements add roughly €200–€600 per year, require notification to the insurer, and often mandate monthly check visits by a named caretaker.
Many buyers do not discover the vacancy clause until a claim is rejected. An insurance lawyer in the Algarve estimates that 40% of rejected claims involving second homes in Portugal contain a vacancy element — the insurer arguing the clause was triggered before the damage occurred.
What to Do Before You Buy
The correct sequence is: obtain insurance terms before exchange, not after. A specialist international property insurer (rather than the local broker recommended by the agent) will quote across multiple markets and explain the specific exclusions in plain language. Key questions to ask:
- What is the named-storm or windstorm deductible, expressed in monetary terms on this dwelling value?
- Is flood included or excluded?
- Does the policy include rental income replacement, and what is the annual limit?
- What is the vacancy threshold, and what endorsement is available to extend it?
- Is wildfire cover available, and at what premium?
- What is the insurer's practice in this area following a major event — have they cancelled policies post-claim?
Specialist international property insurers including Hiscox, Lloyds of London syndicates, and AXA's international residential division typically offer broader cover than local market equivalents — at a premium of 15–25% above standard market rates. For a $600,000 property, that additional premium of $200–$400 per year is substantially cheaper than any single coverage gap discovered during a claim.