Home Buying Tips 101 – From an Insurance Perspective :)

Looking for a home? Know a great realtor but might not have the credit to score the lowest interest rate? As summer is in full swing, and the market is definitely in the sellers advantage, consider these helpful tips when negotiating with buyers and finding the home of your dreams that won’t break the mortgage and insurance bank.

Older Homes Are More Expensive to Insure

Turn of the century homes are gorgeous, pristine, and artistic; but in the minds of an insurance carrier they are a nightmare. What is behind those 150 year old walls? How well has the home been maintained? How expensive will replacing an original 4 x 4 cost in present day lumber and materials costs? What updates have been performed and by whom over the years? All of these questions are those you, as a buyer, must consider when seriously contemplating an older home as your new home.

Consider these points and discuss them with your realtor:

  • When have updates been performed? 
    • Heating – for insurance purposes a natural gas furnace has an expected life span of 25 years (newer models 15 years +/-) Older major appliances have a higher probability of causing a fire or causing a claim
    • Electrical – Knob and Tube wiring is a fire hazard and a no no in insurance. Fewer and fewer companies are now writing fuses. Find out if your home has been updated to a circuit breaker. If not write it into the purchase offer!
    • Plumbing – PVC is the current material of choice for plumbing. Older homes have copper/aluminum piping. Review the home inspection for any issues with rust, corrosion, or  leaks as the smallest leak could cause a wet ceiling to collapse and a water claim on your insurance.
    • Roof – arguably the most important aspect of a home. Asphalt or architectural shingles keep out the snow, ice, rain, hail, and other elements mother nature has to throw at us. Why wouldn’t a new roof be your main prerogative? If your prospective home has a roof over 15 years of age insurance carriers are looking to insure it for actual cash value. What this means is prior to you being paid to replace your roof in the event of a claim the insurance carrier factors in depreciation (a calculated value including original material and age). This means you will not have your roof replaced at ‘replacement cost’ and you will end up chipping in much more than you intended to repair a damaged roof as a result of a usually covered loss.

What condition is the home in? Will you need $5,000 or $50,000 to make this property livible to your standards.

Is your home prone to a theft? Do you have a security system? There are discounts in place to reward those looking to keep the burglars out and their property investments in.

What is the neighborhood like? This may not be at the forefront of most buyers minds however insurance carriers have crime, claims, and other metropolitan information used to devise premiums. Acturaries love this stuff!

What is replacement cost?

Don’t be fooled… Your home’s dwelling value has nothing to do with market value! Nothing!

Your dwelling limit is based on the cost to reconstruct your home, by a licensed contractor, using materials of like kind and quality of those the original dwelling was constructed of. Insurance agents and carriers will input specific information on the construction, quality, components, and qualifying features of your home that make it yours.

  • Hardwood Flooring
  • Basement Finish – Bar, additional bedrooms, walk-out to the backyard, French doors, etc….
  • Skylights
  • Built-in fixtures
  • Marble Counter Tops – Custom Designed Kitchen Cabinets
  • Exterior Decks – Gazebo – Enclosed Sun Room

Think about how you would replace any of the above features out of your own pocket if your insurance carrier deemed that the original construction of your home did not include these upgrades and you were forced to replace the materials and labor out of your own pocket. Any of the above may increase your homeowners insurance by $25-$50-$75 dollars … but it certainly will not break the bank.

Types of Homeowners Insurance – Based upon Property Type

HO3 – Most common form of homeowners insurance. Comprehensive insurance coverage for common causes of loss. These causes can include wind, hail, fire, along with theft and malicious mischief. It is a common exclusion or coverage gap, that HO3 policies do not cover flood, water intrusion or earthquake

HO4 – Renters Insurance. Bundle this coverage with your auto policy to protect your personal belongings but to also prevent against the possibility of a lawsuit should someone injure themselves while in your home or residence. Medical bills are expensive and with more and more Americans without health insurance you may be the next in line to pay for an injury your guest cannot afford otherwise.

HO6 – Condo or townhouse Insurance. Your association or co-op will own the exterior of the building and most likely provide coverage for the interior studs of your unit… but what do you actually insure with an HO6? Associations will commonly not insure any improvement or betterment completed inside of your unit at the time of the loss. Association Master Insurance policies are in place for any loss to siding, roofing, possibly drywall and water damage depending on your policy, but are not designed to offer coverage to the unit owner. Loss assessment coverage is a vital part of a condo insurance policy. Your association’s master insurance policy will have a deductible. The association will assess a portion or all of that deductible on to its residents. This deductible can be a % of the total insured dwelling limit or a set dollar amount. It is not uncommon to see an association deductible set to $25,000 or $50,000. You do not want to be holding the assessment letter from your association demanding thousands of dollars as a result of a loss to your building or the entire complex.

HO8 – Specialized Policy for Older Homes. If you purchase a home which has been fully restored, is hundreds of years old, or just has a charm which modern-day building designs cannot replicate, an HO8 is right for you. There are limited selections of companies who will insure an HO8, and for an increased cost… but is your 18th century home with a $750,000 mortgage worth the risk? HO8 policies will use the building materials of the bygone era which your home was constructed and rebuild it to it’s aged glory, just to modern standards. Your carrier will find you that lead glass window, those oak spiral staircases, and a contractor skilled in the finishes of that time to reconstruct your historic home, all brand new. If you are as much of a historian and architectural nerd as I am I would at least look into an HO8. It will let you sleep at night knowing your home won’t turn into the bi-level down the street 🙂

Inspections

Lastly, if you value your money, don’t skimp on the inspection. A licensed, experienced, honest inspector will far and exceed the money paid for their time to visit your home and review its bones, systems, and structure. Your inspector will crawl into the crevices and wells which you would never venture, turn on every sink and faucet, test the outlets for usability and that they are connected, evaluate the foundation, basement, structural components, electrical systems, piping, roofing, siding, and any other part of your prospective home that may have been missed during the original open house, following showing, secondary walk through, or other visit. The money spent on an inspection will save you time and headaches in the future, along with the opportunity to negotiate the sales price or dictate that issues be repaired before a final purchase agreement is signed.

Closing

As always I am here as a source of information. Depending on where you are on this expansive planet of ours I can send you the information of a licensed professional who can start you on the walk down the path to home ownership. Being left asking or wondering what options you have is an empty feeling, one that I have had prior to my insurance carrier. I want all of you to have a resource, so use me as yours.

 

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