Buying a home, what you should know about insurance.
The last few years have seen many changes in the Insurance companies willingness to insure some home. Some home that previously carried insurance become uninsurable after a sale. In other cases premiums have gone up considerably.
When buying a home it is now prudent to inquire if there are any problems that would raise concerns for insurance companies particularly when buying an older home.
Insurance is required before a bank will approve a mortgage, and some real estate sales have fallen through because financing could not be procured in a timely manner.
|*Some Insurance Terms
- All Risk or All Peril
- Insurance for losses due to a wide range of perils such as fire, lightning and so on. The Insurance policy covers losses ore damages that is the result of any risk that is not specifically excluded. A better term might be "all common risks".
- By-law endorsement
- Any additional expense to bring an existing building to current code after it has had to be substantially rebuilt due to severe damage. Normally a building has to comply only with the code in effect at the time it was built.
- Comprehensive Policy
- An insurance policy providing broad protection, also called "All Risk"
- Coverage Limits
- In addition to overall dollar limits for liability, there are sub-limits on claims for some items such as negotiable securities, cash, garden tractors, software, bicycles, jewelry, watches or collections.
- The minimum amount at which your insurance policy kicks in. Most insurance policies have them to avoid minor "nuisance claims".
- Direct Loss
- The loss or damage of insured property or goods. Does NOT include other losses or expenses incurred as a result of the direct loss such as having to rent a camera if one is damaged before leaving for a trip.
- A reduction in insurance premiums as a result of: insuring car and home together, seniors discounts policy, installation of security equipment or alarms etc.
- Your home and "attached structures" such as garages, permanent installed outdoor equipment on the premises such as pool and pool equipment. Building material for use in construction of the insured dwelling or related structures if they are on site or adjacent to it.
- Guaranteed replacement cost endorsement
- This will make up a shortfall in the event that the replacement cost of the home is underestimated.
- Named Peril Coverage
- An insurance policy that covers losses from specifically listed causes The opposite of All Risk coverage.
- Personal liability
- This applies at home or anywhere in the world for bodily injury you may unintentionally inflict on others (third parties) or to their property.
- Personal property
- A home insurance policy will cover the contents of the home and other personal property that is owned, worn or used while on your premises. It sometimes cover uninsured personal property of others but excludes boarders who are not related to you.
- A chance event that is unexpected and accidental as far as the policyholder is concerned.
- A term used when an insurer tries to recover some or all of its costs in settling a claim by suing others responsible for the loss.
- Uninsurable Perils
- Insurance is generally intended to assist policy holders cope with financial consequences of unpredictable events that are "sudden and accidental". Predictable events such as flooding of a home built on a flood plain, or preventable events such as frozen indoor pipes are not covered.
- These definitions are for information purpose only. They are not intended to describe all policies. Refer to your own policy for details. If you have any questions direct them to your insurance broker. Policies differ and so does coverage and exclusions. READ YOUR POLICY!
Some issues in Home Insurance
- Aluminium wiring.
- Aluminium was extensively used between 1965 and 1976. Problems have occured from overheating and failure of aluminium wiring terminals often because of corrosion. Properly maintained and installed aluminium is safe and is still installed particularly in higher voltage use. Before insuring a home with Aluminium wiring, an insurer may insist on a complete electrical inspection by a certified electrician. The report from a home inspector will likely be insufficient. A home inspector should alert a buyer to the presence of aluminium wiring. If a seller is aware of its presence this should be disclosed.
- Knob and tube
- Knob and tube wiring was used extensively over 50 years starting in the early 1900's. It has proved a safe and reliable system if properly maintained and not overloaded. Unfortunately over the years, home owners have added to the loads without increasing the number of circuits and thus have overloaded the existing circuits. Because of the age and sometimes overheating, the insulation has become damaged and brittle. These factors have made many knob and tube installations unsafe. Many modern appliances require a ground to be safe and knob and tube does not provide this. Some owners have either added plugs where the ground connection is not connected or simply broken off the ground pin adding to the potential problem.
Although homes with knob and tube can be insured at this time, the insurer is likely to require some reassurance that the system is safe. An inspection from a qualified electrician will likely be required and any evidence of mechanical abuse, deterioration, poor connections, overheating, or unsafe alterations will need to be remedied before insurance can be secured.
- 60 Amp Service
- Some insurers are refusing to cover or renew policies on properties with 60 amps service on the grounds that it is simply insufficient and is likely to be overloaded.
Provincial safety codes do not impose a legal requirement to upgrade or replace 60 amp service, knob and tube, or aluminium wiring, as long as it was properly installed and maintained, but you might not be able to get insurance.
- Old Gas Furnaces
- Gas furnaces older than 20 years old have raised red flags for insurance providers.
- Oil Tanks
- Because moisture often accumulates inside the tanks and causes corrosion leading to leaks, insurance companies are very nervous about old oil tanks. They get positively twitchy when the tanks are buried. The province of Ontario has regulations regarding underground tanks.
Leaks cause several problems. They can be a serious fire hazard, they can be a health hazard and they can be a source of contamination for groundwater and ground leading to serious environmental problems and liability.
If you buy a home with a oil heating system it is important to have the system inspected and make sure it is safe and installed safely. Contacting your insurance broker to get details on requirements is a good idea before committing to buy a home with an oil tank. The oil supplier will be aware of necessary safety inspections or requirements regarding replacement of older tanks.
A seller should disclose the presence of any (buried or otherwise) oil tank, or any other problems linked to the oil heating system.
- Wood burning appliances.
- There exists an official code that specifies exactly how wood heat appliances should be installed, and there could be insurance coverage issues if the code has not been followed.
There are 4 points the insurance company will be concerned with.
- Is it an approved unit? It should be certified by Underwriters' Laboratories of Canada (ULC), The Canadian Standard Association (CSA), or by Warnock Hersey. There are many safe but uncertified units available but insurers will often refuse to insure a stove or insert that is not certified.
- Was it installed by a professional? An insurer will like to know that no short cuts have been taken and the installation is safe. A chimney usually requires a building permit.
- Are the clearances up to the latest Building and Fire Code? Unlike most other building code issues where a home is required to be up to code only for the year it was built, there is a requirement that the installation of a wood buring appliance follow the CURRENT fire and building code.
- Is the venting system proper? Ideally there should be no elbows in the stovepipe and it should be as short as possible.
There are also a number of basic safety steps, such as the proper maintenance, cleaning and inspection, as well as the presence of smoke detector and fire extinguisher.
- Although conclusive evidence is lacking on the problems caused by mould, there is enough to raise red flags for everyone. Insurers are not keen on providing mould insurance and most companies have excluded mould from their policies. It is possible to get coverage for mould but it is expensive. Mould is generally considered an invitable risk and something inevitable is not insurable. It is usually excluded.
Mould is often a problem of ex grow ops and if you are considering such a home it is important to verify that the home is safe and mould is not present. It is also very important to verify that the home can be insured before purchasing. There is an obligation to the seller, to disclose if a home has been used as a grow house.
- Older or Heritage Homes
- The simple fact that a home is older will cause alarm bells to ring for insurers and make it harder to get insurance. Some cases of insurance being refused simply on an age issue have been reported.
Many issues have come up with older homes. Roof which are older than 20 years have been a problem. Insurance companies are also concerned with oil tanks, wood burning appliances, old wiring or 60 amp service, old plumbing including galvanized pipes.
If you are interested in purchasing an older home, allow enough time to shop for insurance, fix potential problems, and be prepared to pay higher premiums if interim insurance is required.
- First Time Buyers
- First time buyers without prior home insurance history may have some difficulty insuring a home.
- Insurability point system
- Insurability point system now used by insurers which may be detrimental to first time buyers. This includes "red zoning" because of the location of the property.
- Many area are now infested with termites and a termite inspection is always good idea. Insurance might be difficult to get on a home which has termites.
- Remember to READ your Insurance policy.
- Make certain you know what you are insured for and what the exclusions are. This could save you a lot of trouble and money in the long run.
What kind of home insurance is there?
It is possible to insure for just about anything if you are willing to pay the price, however most policies fall in one of these three basic types:
- Comprehensive coverage applies to both the building and its contents, excluding items named specifically in the policy.
- A basic or named perils policy covers your property only against dangers that are named in the policy, such as fire or earthquake.
- A broad policy provides comprehensive coverage on the building, and named perils on the goods inside. It is usually cheaper than a comprehensive policy.
Named Perils policies are designed to cover accidental damages to the house. Insurance policies can be bought for fire, explosion, water damage, theft, hail, and electrical current. Additional coverage can be bought for perils not normally covered in a home insurance policy, including sewer back up and furnace oil spills.
Landlords are not responsible for the possessions of a tenant. Renters and condo owners can get coverage for both contents of the apartment and for any improvements they have made.
Cost of insurance
There are many factors affecting the cost of insurance. The amount of coverage, what is covered, the deductible are all factors. The number of claims made by owners will also be a factor. The short version is: the greater the liability and risk to the insurance company the larger the premiums. Insurance companies don't like risk and premiums reflect this. The larger the risk the property carrries, the more expensive it will be to cover.
Areas prone to natural disasters such as hurricanes, flooding, forest fires and tornadoes, will have premiums reflecting this.
Condo owners should insure their belongings and the structural parts of the building that they own (such as kitchen cabinets) under their own insurance policy. The condo board will need to have an insurance policy to insure the overall building. including each unit. It is important while deciding what insurance coverage to get, to get detailed information on the condo board coverage. Who pays if the apartment above you floods your apartment or drops something on your balcony? Condo unit assessment coverage will protect a buyer if a one time special assessment is necessary for maintenance purposes.
As usual the bottom line is do your homework, figure out what the condo board covers and what is not covered and decide what you want to insure yourself against and what potential problems might arise.
Not strictly home insurance, title insurance will protect a buyer against issues that may slip past a title search. It will help protect against claims made because of unpaid taxes, poor title or encroachment, survey defects, tax arrears and fraud. It is important to be informed on what exactly a specific title insurance protects you agains. Read the policy and ask questions.
It often happens that a home is left vacant for sometimes several weeks while a seller has moved and the buyer has not yet moved in. A vacant home is often NOT COVERED for more than 30 days. It is important to check what coverage is in place in this case.
What happens to your stuff when you move. Make sure you know if you are covered for unexpected bad things to you and your stuff during your move.
Renting out part or all of your property has implications for your coverage. It is important that you make sure what your coverage is if you rent out your property. If your tenants engage in illegal activities such as grow op, then it is not likely you will be covered for the subsequent damage to your property.
Most of the information in this article comes from the Canadian Real Estate Association (CREA) publication: What REALTORS should know about property insurance. This information is presented for general interst and is not to be interpreted as legal advice. Nick Boothby and Christine DeMerchant are not experts in home insurance and advise you to talk to your insurance provider. Read your policy (we know its a hard read!) and know what you are covered for and what the exclusions are. As you improve your home, increase your coverage accordingly. We hope you never have to make a claim.
Planning to buy or sell Immediately? Contact Nick Boothby