An Insurer’s Guide to a ‘Healthy’ Home
REALTOR magazine March 2015
Think about health insurance. Providers can charge you a higher premium if you fit a profile that indicates you are at higher risk of medical ailments. Though you can’t be denied coverage because of pre-existing conditions anymore, they can still make your rates higher. Such conditions can also apply to those who are older, live in a location with statistically high health problems, smoke, or have a higher body mass index.
The same principle applies to homeowners insurance. Purchasing a home that has had past claims for structural problems or has characteristics making it more susceptible to damage will increase the premium a new home owner pays. Oftentimes, it’s not until a sale contract is signed and a home inspection is completed that a home buyer catches wind of possible issues with a house. By then, they’ve already fallen in love with the place, and unfavorable inspection results can be devastating.
But there are ways for buyers to spot problem properties before they get too invested in any particular home. “You want to look at the condition of the house from an insurance perspective,” says Jeanne Salvatore, senior vice president of the Insurance Information Institute. “It can save a lot of time and money.”
So here are a few ways buyers can tell whether they’re looking at a “healthy” home:
Ask for a History of Losses on the Home
Disclosure laws in many states require a seller or seller’s agent to inform the buyer of any known issues with a home. But a seller’s disclosure should always be backed up with other documents, says Laura Adams, senior insurance analyst with InsuranceQuotes.com. You never know issues could exist that a seller isn’t being forthright about.
Ask sellers to provide a Comprehensive Loss Underwriting Exchange report, which documents insurance claims made on a property in the last five to seven years. LexisNexis manages a database of CLUE reports for every property in the country, though only the current home owner is allowed to pull a CLUE report on their own property.
Prior claims will affect the home insurance rate a new owner gets, so a CLUE report not only informs prospects of possible defects with a property, it also tells buyers whether they might pay a higher premium for insurance.
“Even if something happened before you owned the property, that is going to impact the rate that you have to pay,” Adams says. “That may seem a little unfair, but for the insurance company, past claims are a red flag that tells them that this is a property that could have issues.”
Buyers could also glean some good news from past claims, Salvatore says. “If there was a claim, then there was an improvement to the house — perhaps a new roof or plumbing system,” she says.
Identify Risky Structural Elements
According to the Insurance Information Institute, 4.8 percent of insured home owners filed a claim in 2013, with 97 percent of those claims related to property damage. A leading cause of property damage is water, says Tim Arone, vice president of risk management at PURE Insurance. He says 32 percent of claims at his company last year were water-related, costing an average of $55,000 per claim. Arone points out common elements of a home that make it prone to water damage:
- Flat roofs: “If there’s a portion of the roof that’s flat — often over an enclosed porch — it is much more susceptible to leaks because of drainage problems,” he says. Be aware that gutters need to be cleaned far more regularly for this type of roof. If you’re not the cleaning type, you may want to pass on the home.
- Exposed pipes: Especially in the attic, some pipes may not be properly insulated. Guess what happens to them in winter? They freeze and burst. “You can’t do patchwork yourself to fix a burst pipe,” Arone says. Busted pipes often lead to more extensive damage in a home, he adds. Buyers who find exposed pipes have a couple of options: Pay extra to get the pipes insulated, or keep looking for their dream home.
- Rubber tubing on appliances: This is an issue that can easily be fixed, but it’s often overlooked. Rubber hoses, used often on laundry machines, can wear out and break in as little as five years, Arone says. Use braided hoses instead; they’re more durable.
Red Flags for New Construction
Many buyers assume that new homes are sturdier and safer than existing homes, but because of certain building materials, the opposite may be true. Lightweight lumber, for example, is used by many builders because it’s cheaper. “But from a safety standard, it’s not good,” Arone says. Lightweight lumber burns very quickly and collapses more easily than traditional framing materials, he says. So if a fire breaks out, the entire house could be up in flames in minutes. Salvatore adds that this should be a particular concern for smokers, as smoking is the most common cause of fires.
Obviously, this scenario is perilous to buyers’ safety first — but their pocketbook may be a close second. From 2009 to 2013, the average cost of an insurance claim for a fire, lightning strike, or debris removal was $37,153, according to the Insurance Information Institute. That could send your insurance rate soaring.
Corrugated stainless steel tubing, which is used to deliver natural or propane gas to a home, is also a major concern with new construction. It’s a particularly good conduit for starting fires. “Reports have indicated that when lightning strikes, it goes to the tubing and can set the house on fire,” Arone says.
But perhaps the most common frustration of home owners is a particular problem in new homes. Have you ever noticed that one room stays cool while another room is always hot? That’s usually due to an HVAC system that wasn’t properly sized for the home.
“An HVAC system that isn’t properly sized isn’t getting enough fresh air into the home,” Arone says. That could make the indoor air quality in a new home poor. Aside from the disparate temperatures throughout the house, a poorly sized HVAC system can also decrease the energy efficiency of a home and cause higher energy bills.
Smart Homes Pose Fewer Risks
Common problems can be avoided with the use of technology. Homes that have smart appliances generally have added safeguards. Smart appliances run on default programs when the home owner isn’t using them, and that can keep other elements of a house in good working order.
For example, a Nest thermostat can detect when no one is home and keep the temperature from falling below 60 degrees in colder months, ensuring that it never gets cold enough for pipes to freeze. Smart fire alarms like the Birdi also monitor air quality, including dust, soot, and carbon monoxide, and can alert authorities when necessary.
Obviously, buyers can have these products installed in a home after purchase, but a home that already has them is a sign of a well-kept property.
PURE Insurance, a “reciprocal” organization whose policy holders are also shareholders of the company, even pays $2,500 for a member who has claimed certain property losses to install smart appliances that can prevent a similar loss in the future, Arone says.
Does the Home Fit Your Lifestyle?
Certain property features can be a bigger hazard depending on how a buyer lives. Adams notes that if someone hosts parties often, even having a swimming pool becomes a liability. “If you have a lot of coming and going on your property, anything that can cause a flip or fall or something can translate to trouble for you,” she says. Personal injury claims were the second-costliest insurance claims in the country between 2009 and 2013, averaging $19,466 per claim, according to the Insurance Information Institute.
“Think about dog bites: That’s a huge claim for home insurance because people go to the hospital and have health care costs associated with it,” Adams says. For that reason, buyers with dogs should seek out a property with a fenced-in yard.
Theft and vandalism are also common claims. If a buyer is out of town often, they should be aware of the neighborhood where they’re looking at living. “If you see claims for theft in a seller’s CLUE report, that could tell you you’re in a riskier neighborhood,” Adams says. She advises buyers talk to potential neighbors about their own experiences, and ask an insurance agent about claims that have been made on other homes in the area. That can give a buyer a good idea whether the home they’re considering really fits their lifestyle.