Many of the most desirable towns and city neighborhoods are centered around a cherished historic district marked by charming older homes and buildings with architectural significance. If you’re lucky enough to live in one of these historic homes, properly insuring your investment is imperative.
You didn’t choose a cookie-cutter house, so a cookie-cutter insurance broker isn’t the best choice to protect it.
It’s important to choose an insurance broker who understands the unique features associated with older homes. In the unfortunate event of a home loss, your broker should have the experience to assist with the appropriate restoration. Before an insurance company/carrier will cover an older home, there is much for them to consider.
Has the home been updated?
Insurance companies want to be sure that the major bones of a home have been updated within the past 20-25 years. This includes the roof, wiring, heating and plumbing.
- Roof: Since your roof is your first line of defense against weather-related events, many insurance companies will include its age in their eligibility guidelines and as part of their premium development. For composition roofs over 15 years old, they may only offer an actual cash value settlement versus replacement cost. Carriers are more lenient with slate roofs, as they can last over 75 years. However, they will want to know that these have been inspected and maintained on a regular basis.
- Wiring: Knob and tube wiring was popular in homes built pre-1940. Although electricians will argue that this type of wiring is safer than modern wiring systems (assuming it has been properly maintained), many insurance companies consider it to be hazardous and will not insure homes that contain it. The insurance companies that are willing to offer coverage may ask for documentation from a licensed electrician stating that the wiring system is in good working condition. Aluminum wiring is also unacceptable to most insurance carriers.
- Heating: As your heating system ages, it’s important to regularly maintain or upgrade it to avoid any accidents.
- Plumbing: Water damage is one of the leading causes of homeowner claims, so it’s no surprise that insurance companies want to know about plumbing updates. Galvanized pipes were popular in homes built prior to 1960 and are unacceptable to most insurance companies.
What steps have you taken to help prevent or mitigate losses?
Historic homes can be more expensive and harder to insure than newer homes because insurance companies view them as a higher risk. Even if your home has been properly maintained, any additional steps taken to prevent or minimize loss will be looked at favorably by an insurance company.
You may receive insurance premium credits for these installations.
- Central station burglar and fire alarm system; often required for homes valued over $1 million.
- Low temperature monitoring.
- Water leak detection with automatic water shut off. More insurance companies are requiring this feature for higher-valued homes or homes that have had a previous water loss.
- Sump pump with non-electrical backup; may be required for homes with prior water backup losses.
- Permanently installed backup generator
Top insurance companies research and vet preferred vendors to provide these various mitigation tools. In turn, these vendors frequently offer a discount to the insurance companies’ clients. Make sure your broker’s carriers have these relationships that will benefit you.
What’s the difference between market value vs. replacement value?
One of the most common questions we receive as an agent: Why is my dwelling value so high? I couldn’t get that much for it if I sold it today.
Market value is the price someone is willing to pay for your home and is a direct reflection of the community and value of the surrounding homes. Homeowner’s policies are intended to insure a home for its replacement value, which is the cost to rebuild the home with the same quality of material that existed prior to the loss. Debris removal, architectural fees and other soft costs are also built into this number.
In most Midwestern communities, the replacement value is higher than the market value.
When dealing with an historic home, the disconnect between market value and replacement value is even greater.
Older homes are all about character. As such, it’s important that homeowners maintain the charm and integrity of their historic home. If a home is listed on a historic registry, the city or township may require you to adhere to certain ordinances during a repair or rebuild. The use of high-quality materials and custom woodwork results in more costly repairs and replacements. In addition to facing higher materials costs and potentially longer permit approval time, you may also have difficulty finding a skilled craftsman to restore the home to its original state. If your home was built with materials that are no longer up to code or are considered dangerous by today’s standards, you may be required to replace specific items with newer materials. All these possibilities should be considered when determining the replacement value.
What’s the broadest coverage available?
Consider homeowners policies that offer extended or guaranteed replacement cost coverage.
- Extended replacement cost policies provide a specified additional percentage of coverage (usually 25% or 50%) above the dwelling amount listed on the policy in the event of a total loss.
- Guaranteed replacement cost is the broadest from of coverage and does not cap the amount paid in the event of a total loss. The latter typically requires the insurance company to complete a home inspection to verify that it’s being insured for 100% of its replacement value.
- Law or ordinance coverage is extremely important for older homes. If a partial or total loss requires certain aspects of your home to be brought up to code, this coverage will pay for the additional expenses. While many standard insurance companies limit this coverage to 10% of the dwelling limit, select companies will provide coverage up to 100% of the dwelling limit.
- Loss due to sewer and/or drain backup is one of the most common causes of loss. Water backup coverage must be added for an additional cost with standard insurance companies. The available limits are typically between $5,000 and $100,000. Top-tier insurance companies automatically include coverage up to the dwelling limit at no additional cost.
Oswald and our partner insurance companies are dedicated to protecting what means most to you.
For a fresh look at preserving your historic home for generations to come, visit our Personal Risk page or contact:
Senior Private Client Advisor, CPRIA, CISR Elite
Note: This communication is for informational purposes only, and is not intended to offer legal, tax, or client-specific risk management advice. Information in this communication is not meant to describe specific coverages that may be advisable or available to you or your company, or to interpret specific coverages that may already be in place. General insurance descriptions in this communication do not include complete insurance policy definitions, terms, and/or conditions, and should not be relied on for coverage interpretation. Actual insurance policies must always be consulted for full coverage details and analysis. View our privacy notice.