Do Older Homes Need Special Homeowners Insurance?

Do Older Homes Need Special Homeowners Insurance? article image.

From stained-glass windows and Dutch doors to dumbwaiters and wood-burning fireplaces, older homes have charms cookie-cutter new builds often lack. In many areas, older homes are also more affordable. But older homes can be riskier to insure and more expensive to repair or rebuild. Depending on your home's age and condition, you may need to buy special home insurance coverage for an older home or add certain insurance riders or endorsements to your policy.

Does Insurance for Older Homes Cost More?

The cost to insure a home generally rises as a home gets older. On average, insurance premiums for a home over 30 years old are 75% higher than for a brand-new home. Why does insurance for older homes cost more?

  • Decay: Years of weather and wear make older homes more prone to additional damage, especially if maintenance has been lax. Galvanized steel pipes, for example, can corrode and spring a leak more easily than modern copper plumbing.
  • Safety standards: Older homes weren't built to the same codes new homes must adhere to. Outdated plumbing, roofing and electrical systems can pose major risks. Knob-and-tube wiring, used throughout the 1930s, greatly increases fire danger; some carriers won't insure homes that have it. Aluminum wiring, popular in the 1960s and '70s, can also be a fire hazard. If you file an insurance claim, bringing your home up to current building codes will add to the cost of repairs or rebuilding.
  • Materials and design: Rebuilding or repairing an older home using original materials and features, such as solid-core doors, plaster walls or leaded window panes, is likely to be more expensive than using current building materials. You'll pay more for period-specific parts and for contractors skilled in these types of repairs. There may even be additional costs to dispose of hazardous materials such as asbestos.
  • Historic restrictions: If you live in a home that's been designated as historic, you'll have to follow national, state or municipal standards for rebuilding and repairs, which can add even more to the cost.
  • Claims history: A home with a history of insurance claims generally costs more to insure—even if you didn't live in the home when the claims were made. Insurance carriers tend to view a pattern of insurance claims as a sign of a high-risk home.

Will Your Lender Require Home Insurance?

If you have a mortgage, your lender will generally require homeowners insurance to protect their collateral (your home). This differs from mortgage insurance, which protects the lender if you cannot make your mortgage payment. Regardless of your lender's requirements, going without homeowners insurance is a big risk. Your home is most likely your single biggest asset, so it's important to protect it. For example, if you wanted to get a home improvement loan you may be required to have homeowners insurance.

Do You Need Special Coverage for an Older Home?

Homeowners insurance coverage typically includes:

  1. Liability coverage if someone is injured on your property.
  2. Additional living expenses for living elsewhere while your home is repaired.
  3. Repairing or replacing your home's structure if it's damaged or destroyed by fire or smoke; wind, hail or lightning; water (with some exclusions); and vandalism or theft.
  4. Repairing or replacing your personal possessions if stolen or damaged by the above threats.

If you have an older home, pay particular attention to your home structure and possessions coverage. There are three basic options for this coverage, according to the Insurance Information Institute:

  1. Actual cash value: Your insurer pays to rebuild your home or replace belongings minus a deduction for depreciation.
  2. Replacement cost: Insurance payout covers the cost to rebuild or repair your home or replace possessions without a deduction for depreciation.
  3. Guaranteed or extended replacement cost: Guaranteed replacement cost pays to rebuild your home exactly as it was before the covered incident, even if doing so costs more than the policy limit. This coverage is designed to protect homeowners from soaring materials and labor costs that often occur after a widespread disaster. Extended replacement cost is similar, but instead of guaranteeing full payment, it pays up to a specified percentage (usually 20% to 25%) over your policy limits.

Guaranteed or extended replacement cost coverage typically does not pay for upgrades required by current building codes. Since these improvements are essential for your older home, consider adding an "ordinance or law" endorsement to cover them.

Specialized coverage for older homes includes:

  • HO-8 policy: Insurers may require these policies designed for older homes where the cost to replace the home is less than its market value. HO-8 policies usually reimburse covered damages on an actual cash value basis.
  • Historic homeowners insurance: Insurance designed for designated historic homes is offered by National Trust Insurance Services.
  • High-value homeowners insurance: If your home is valued at $750,000 or more (some insurers require valuation of $1 million or more), you may qualify for high-value homeowners insurance, which generally has higher coverage limits. Chubb and AIG are two insurers that offer this coverage.

Standard home insurance does not cover damage from floods, earthquakes, sinkholes, landslides, sewer backups, septic tank backups, drain backups or sump pump failures, but you can buy this coverage separately.

How Can You Save Money on Homeowners Insurance?

Even with an older home, there are several ways to save money on homeowners insurance.

  • Make upgrades. See if you can lower your rates by replacing older materials and systems, such as your roof, plumbing and electrical wiring.
  • Bundle your coverage. Purchasing more than one type of insurance, such as home and auto, from the same carrier typically earns a discount.
  • Increase your deductible. Be careful not to increase it beyond what you can reasonably pay, however.
  • Ask about discounts. Carriers may offer discounts for installing a security system or other safety feature; for veterans, seniors, members of organizations; or for going claim-free for a certain number of years.
  • Shop around. You can get insurance quotes online directly from carriers or from sites that match you with insurance products. You can also work with an independent insurance agent who sells coverage from a variety of companies. Be sure you're comparing the same amount and type of coverage from one insurance to another.

Will Insurers Check Your Credit?

Before providing homeowners insurance, insurance carriers in many states review your credit-based insurance score, which predicts your likelihood of filing a claim. This score differs from the credit score lenders check. Like that score, it includes factors such as your overall credit utilization, payment history and any defaults or collections, so checking your credit score can be a good indicator of whether you'll pay more for home insurance.

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