Before buying a home, a home inspection can help you find flaws in a home so that a leaky roof, for example, doesn’t lead to water damage or faulty wiring doesn’t cause a fire. These flaws could lead to the home being destroyed, or at least damaged, resulting in a home insurance claim.
Home inspections not only alert you to needed repairs, they can also help you determine how much homeowners insurance you’ll need. Checking a home’s heating, cooling, plumbing and electrical systems, among other things, can help you determine how those systems are running and if there are any areas that need repairing.
An inspection won’t prevent what causes most home insurance claims, catastrophe claims such as hurricanes and other volatile weather. But fixing up those systems could lower a home insurance premium, or at least alert you to how much insurance you need to cover the structures and systems in your home.
Homeowner insurance claim costs are rising 5 percent annually, with more volatile claims being filed from 2009 to 2013 for catastrophes, according to the Insurance Research Council.
What an inspector should look for
A home inspection and appraisal will help you shop for insurance. Here are some things a home inspector or another professional should look for to help determine the home’s insurance needs:
- Structural issues. These include the condition of the roof, windows, doors and siding. If they can’t be fixed inexpensively, a buyer may want to ask the seller to fix them or lower the price of the home. An old roof that’s falling apart may have to be replaced before an insurer offers coverage.
- Mechanical condition. Plumbing, heating, cooling and electrical systems should be checked. If you’ll likely need to buy a new furnace in the next year, it can be worthwhile to ask the seller to kick in half the expected cost. Old plumbing could make it difficult to find insurance, or raise the cost of insurance.
- Pests. A home inspector may not be qualified to check for pests such as rodents and termites, so hire a qualified pest inspector to check for damage.
Types of homeowners insurance
There are two types of homeowners insurance: replacement cost and actual cash value policies.
Replacement cost covers the current cost to replace your home or possessions with no deduction for depreciation, up to the limit of your policy. A home with unique features such as molding can be more expensive to replace, but would be covered under a replacement cost policy. If your old TV was destroyed in a fire, the policy would pay for the actual cost of a new TV.
A replacement cost policy is about 10 percent more than a cash value policy.
A cash value policy insures the house and its contents for market value, with only the depreciated cost of your possessions covered. That old TV that burned in a house fire would only be worth its depreciated value.
Insuring older homes
When buying an older home, a replacement cost insurance policy may be best because it will pay the full cost (up to your policy limit) to replace unique features and restore the home to its original condition.
If a replacement cost policy is too expensive for an older home, ask your insurance agent about a modified replacement cost policy. Instead of repairing or replacing features regularly found in older homes, such as wooden floors, with similar materials, the policy pays for standard building materials to be used with construction techniques used today.
Replacing an old home may be too expensive even with such a policy. Instead, ask if the coverage can be decreased to replace it with a smaller house of the same quality.
Another thing to consider when insuring an older home is that building codes can change significantly since your home was built. New building codes may have to be met, and even a guaranteed replacement cost policy may not pay the extra cost of rebuilding to code.
Ask your insurer about a law endorsement that can pay a specified amount toward building code costs, and have it added to your policy.
Buying a home can be an opportunity to add features that can lower the cost of home insurance — whatever the age of the home. Ask your insurance agent if it offers discounts for adding a security system, deadbolts, storm shutters, new smoke detectors or other features that can make your home safer.
Aaron Crowe is a freelance journalist who specializes in insurance and personal finance writing.