Is your house a ticking time bomb?
Want to ensure your home is — and will continue to be — insurable? Beware of these five issues.
Got a home? Insure it.
The task sounds easy enough, but insurance companies shy away from risk. Before you shop around for a policy, you should fix that leaky plumbing, update the wiring and plug that pothole in the driveway.
If your home has a structural flaw, it could result in a denial of homeowners insurance coverage long before the underwriter asks about pets or other liabilities. So snuggle up with the pooch and consider these five ticking time bombs that can make homeowners insurance hard to find.
1. Water damage
"The biggest (concern) is presence of water where it shouldn't be," says Bill Wilson, associate vice president of education and research for Independent Insurance Agents & Brokers of America, a national insurance and financial-services association. "Insurers are terrified of water-related claims."
These claims often show up in older homes with leaky plumbing fixtures and humid crawl spaces, which can lead to structural rot and mold that turn into five-figure claims, he says.
Water damage, including from frozen and burst pipes, accounted for about 21% of all homeowners insurance claims in 2008, according to the most recent statistics from the Insurance Information Institute, an insurance-risk research group. The average claim was for $5,531.
In a seemingly counterintuitive twist, mold often is a problem in airtight, energy-efficient homes built in the 1980s and early 1990s, says Jonathon Tudor, a spokesman for InsWeb Corp., an online insurance-quote and information service.
Many of these homes are built with synthetic stucco called exterior insulation and finish systems, or EIFS. If water penetrates the supposed watertight system, it may have no way of getting out, leading to spore growth, according to the Mold Help Organization.
If you have only minor water damage, such as infrequent water in the basement after heavy rain, Wilson advises against making a claim for it. Insurers may fear the damage could recur, and they may not renew your policy. In many cases, you can fix minor damage for less than a policy's deductible.
"When you apply for insurance with another insurer, you are commonly asked if your coverage has ever (not) been renewed," he says. "If so, that can make it difficult to get affordable coverage for the same location."
2. Knob-and-tube wiring
The most common electrical system in homes built before the 1940s is so-called knob and tube. You can identify this system in your attic and basement by its telltale porcelain insulators, or knobs, for running wires through open spaces, and porcelain tubes, which protect wires that run through studs and joists.
Most insurance companies are hesitant to insure a home that hasn't been updated to grounded three-wire circuits, because knob-and-tube systems are now considered high-risk, especially as people increase their electricity use with more gadgets.
To accommodate this increased use, such systems are often modified improperly and are prone to overloading, New Jersey-based contractor Brown Electric says on its website. As they get older, porcelain insulators also can become brittle and snap off, which increases fire risk.
This wiring can last another 10 years or less than a month. "It's one of those chances you don't want to take," Brown Electric says.
3. Roof condition
Homes repeatedly subjected to stormy weather likely have damaged roofs, and "a dwelling with a roof in less-than-good condition may not be desirable to the insurance underwriter," Wilson says.
For insurers, geography matters. The roofs of homes in regions prone to brush fires, high winds and similar phenomena are especially scrutinized. Thus, residents seeking homeowners insurance in Louisiana, Florida, North Carolina and other coastal regions can face difficulties and stauncher codes.
Florida's building code, for example, requires that homes meet strict standards to protect against hurricane-force winds. A 2005 University of Florida study showed that homes constructed after Florida's code was updated in 2002 retained more asphalt shingles in the active 2004 hurricane season than those built between 1994 and 2001. Retaining shingles is critical in storms because if too many are ripped off in high winds, rain might enter the attic and living space.
Insurers also are likely to frown upon homes in all regions with wood shingles, known as shakes, Tudor says. These shingles are more prone to fire, rot and blowing off in a storm, and they can lead to higher insurance rates. "So wood roofs are more expensive across the board," he says.
4. Neglected maintenance
In some cases, insurance companies will send an independent inspector to a property before they write a policy to see if it is well-maintained, Wilson says.
"People who don't take care of their property are more likely to have losses," he says.
Out-of-control ivy could be an obvious indicator of an unkempt yard and send up a red flag. Its roots can cause cracks and allow water to enter the house. Large trees with roots cracking through asphalt or sidewalks — or possibly encroaching on sewer lines — also can be liabilities if a guest trips and is injured.
Tudor says that a homeowner with insurance could be denied a claim for failure to stay on top of the upkeep. He adds, however, that in his experience, many companies will write a policy without a site visit. This means sloppy home maintenance, a missing stair, lack of a handrail or a leaky sink could go undetected when a policy is written.
5. Location, location, location
The three biggest factors for a home's insurability also apply to real estate in general: location, location, location.
Homes in hurricane-prone areas, for example, are notoriously difficult to insure. The same goes for houses built near forests without a sufficient buffer against fast-approaching wildfires, Tudor says.
"Or if the area has a bad reputation," he says, "that tends to be the biggest issue."
On the flip side, Tudor says, homeowners with a monitored security system likely will receive a standard discount of 5% on their policy. This could serve as a hedge for homeowners looking to insure a house in a sketchy neighborhood.
While acquiring a pit bull, Doberman pinscher or Rottweiler for home protection may seem like a wise move, note that having a dog could mean you pay more for homeowners insurance — or it could cause a denial of coverage altogether, Wilson says.
"A number of insurers are now using exclusionary endorsements and not covering dog bites," he says, "or they are adding the coverage only for an additional premium."
