When looking for a home, homeowner insurance price is unlikely to be particularly important. However, homes with hidden risks can make it difficult, expensive, or both to obtain coverage. Learning how to identify them can save you a bunch.
This could be a particularly important concern for first-time buyers and those moving from cities to suburban or rural areas who may be unaware of the general dangers, says Jennifer Naughton, North American risk advisor at Chubb, an insurance company.
Three in ten city residents told a Chubb poll in early August that they are considering moving out of the city because of the novel coronavirus outbreak. Meanwhile, the number of first-time buyers rose 4 percent year over year in the first half of 2020 as lower interest rates made mortgages more affordable, according to Genworth Mortgage Insurance.
Where’s the nearest hydrant?
A homeowner insurance premium can depend in part on the distance to the nearest fire hydrant and fire station, Naughton says. Homes located on narrow streets or otherwise difficult to access for fire engines could also be more expensive to insure.
“When they have to cross a bridge, it’s not just a consideration whether a car can drive over that bridge, but a fire engine as well,” she says.
Some homes are at such high risk of forest fires and storms – hurricanes, tornadoes, storms, and hail – that private companies don’t insure them. You cannot take out a mortgage without insurance. So you need to turn to government risk pools like beach and storm plans or fair access to insurance needs plans better known as FAIR. These policies typically cost more and cover less than regular homeowner insurance.
According to Loretta Worters, vice president of media relations for the Insurance Information Institute, a trade group, many homeowners in storm-prone areas have hurricane deductibles that are higher than the normal deductible. Instead of paying out of pocket the first $ 500 or $ 1,000 of a claim, you may have to pay 1% to 5% of the home value before coverage begins.
Talking to the neighbors and a local insurance agent will give you a better idea of what costs you might incur.
Water damage is a big deal
Covering an older home with outdated wiring, heating systems, or plumbing can also be challenging due to the risk of fire or water damage. Burst pipes and leaking water pipes are a major cause of water damage that costs insurers and homeowners billions of dollars annually.
Home buyers can potentially cut their insurance costs by upgrading these systems and installing water sensors or a whole home monitoring system that cuts off the water supply if a leak is detected, Naughton says. These systems can range from $ 600 to several thousand dollars, she says.
Flood risk is also a problem, says Naughton. Flood insurance is not covered by regular homeowner insurance and typically, mortgage lenders only need to buy homes in the areas of highest risk in order to get specialized flood insurance. However, the federal government’s flood maps can underestimate the risk to many properties, especially when hurricanes become stronger and cause intense rainfall and larger storm surges.
“We’re seeing flooding on the coast that’s increasing quite a bit,” says Naughton. “People who have not previously considered flood insurance should do so because of both the rain aspect and the voltage spikes.”
Again, with the neighbors and a local insurance agent, you can estimate the potential cost. You can get offers for flood insurance from the National Flood Insurance Program and from some private insurers.
According to the US Geological Survey, 16 states are at high risk of a harmful earthquake in the next half century: Alaska, Arkansas, California, Hawaii, Idaho, Illinois, Kentucky, Missouri, Montana, Nevada, Oregon, South Carolina, Tennessee, Utah, Washington and Wyoming.
Earthquakes are another hazard that is excluded from homeowner policies, although some private insurers offer earthquake policies and people in the Golden State can purchase coverage from California’s Earthquake Agency. The deductibles are between 5 and 25 percent of the insurance limit.
Certain types of houses may be at particular risk of earthquake damage, including those built before 1980 that have a log wall – a wood-framed first floor that rests on a concrete perimeter – or a cripple wall, which is a short wooden wall between the foundation and the wood-framed first floor. Both types can be made more secure by anchoring them to their foundations with bolts and brackets. Post-and-pier homes that rest on stilts rather than a continuous foundation would need to put a concrete foundation in place to make them safer.
Residential spaces over garages or other large openings, also known as “soft story” buildings, and houses on steep slopes should be examined by civil engineers for their susceptibility to damage.
Obviously there is no such thing as a risk free home, and you can decide that you are willing to pay the price for higher insurance or abatement costs. But that’s a decision to be made before you buy, rather than holding onto a bill when it’s too late.
“People should go into these situations with their eyes open,” says Naughton.
Liz Weston is a columnist for NerdWallet. She is a certified financial planner and author of five money books, including “Your Credit Score”. Continue reading