You know that when you buy a home, lenders require homeowners insurance. What you might not realize is the insurance company may require a home insurance inspection. When and what these home insurance inspections involve is something of a mystery because they vary by state (what's legal), insurance company, age of the house and more.
Before writing this article, I would have said insurance inspections aren't required before an insurance company writes a policy. My answer would have been based on personal experience buying 15 houses to date … and I would have been wrong!
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Benefits of an Insurance Home Inspection
If you're buying your first home, you're probably wondering what's the difference between a home inspection and a home insurance inspection … or you don't even realize they're different. Home buyers should always get a home inspection.
- A home inspection is paid for by the home buyer, and usually takes two to three hours. Typically a purchase contract is written contingent on a home inspection by a professional home inspector. If enough problems are found, the buyer uses the report to re-negotiate the contract which might mean a lower price or having the seller make repairs (read: After the Home Inspection, Who Does What?).
- The home insurance inspection is paid for by the insurance company. Generally, this is a 4-point inspection that takes 20 to 30 minutes. It covers four critical home systems: HVAC, plumbing, electrical and the roof.
Home Insurance Inspections When Buying a House
Now I realize there are many different types of home insurance inspections. Any one of these can be used when you buy homeowners insurance. Other times you'll have a random insurance inspection or they're now starting to require them for renewal of your insurance policy.
- In Florida, an insurance inspection was never mentioned. Do insurance companies assume the CO (certificate of occupancy) for a new home is enough?
- In New Hampshire, my insurance agent came out to take photos of our condo before the closing. Was this considered a home insurance inspection?
- Often a 4-point mini-home insurance inspection is used to look at the four critical systems that keep your house humming smoothly.
- The insurance company has the right to do more comprehensive inspections of your home's exterior and interior. These are often with older homes that are likely to have more risk due to deferred maintenance.
- … and some companies will want the inspection completed before the policy period begins while others will schedule them 30 to 90 days after the policy period begins.
The age of your house, the area where you live and/or the frequency of recent weather conditions might also influence whether a home insurance company requires an inspection before they write your first policy. They don't have to accept the lender's appraisal of the house you're buying, as appraisals cover the features of your home while inspections focus on the condition of the house. For example, an appraiser will look at the number of garage spaces your house has, room for 1, 2 or 3 cars. In contrast, a home inspector will check the condition of the garage door(s) and garage door opener(s).
The insurance company uses a 4-point inspection to evaluate the risk they're taking when they insure your home. They want to learn the age of these systems and the condition they're in. For example, your plumbing system might be old but in decent working condition. They also want to understand with older homes, if they've been maintained or need repairs. Here are the four systems they look at:
- Roof, as the primary feature that keeps your home dry and free of water damage.
- Plumbing covers the hot water heater and pipes carrying water, making your kitchen and bathrooms functional. It's also an opportunity to look for water damage.
- Electrical system that keeps the lights on, the appliances working and your family happy using their electronics.
- HVAC system to meet your heating, air conditioning and ventilation for healthy, fresh air inside your home.
Always remember that a home inspection, regardless of who paid for it, is done by inspectors who are not experts in every facet of home construction. You and/or your insurance company may need an expert inspection for areas of concern such as mold if water damage is detected.
Can Your Homeowners Insurance Be Cancelled?
After you get homeowner insurance, you might think you're home free … but you're not.
There are a number of reasons why an insurance company might cancel your homeowners insurance policy. More often insurance companies will simply refuse to renew your policy. It might be that the company is no longer writing policies in your state. That happened when the nation's largest insurance companies pulled out of Florida after a spate of hurricanes. State Farm is now writing a limited number of homeowner policies in Florida and Allstate is acting as a broker, selling homeowner insurance policies from other companies.
What's important to understand is your lender requires you to carry homeowner insurance. If your insurance lapses, the lender will buy coverage, generally at a cost of two or three times what you're paying. The only thing you can do when this happens is get replacement coverage in place as soon as possible. Insurance inspections may influence your policy so make sure to follow-up with your agent within 30 days, to avoid Dee Dee's non-renewal experience.
- Cancellation by your insurance company is when the policy is stopped following notification to you. If the policy has been in effect for more than 60 days, it can't be canceled unless you lied on your application or stopped paying premiums.
- Non-renewal happens more often and you should receive notification early enough that you have time to find alternative coverage. Reasons why you might receive a non-renewal notice include:
- Not complying with safety guidelines such as removing pools, trampolines, etc.
- Not meeting fire codes or other home safety recommendations.
- Too many claims against your policy.
- Criminal charges arising from an activity that increases the risk to your homeowners insurance.
- Not making necessary repairs (where this article began) to reduce the risk to your homeowners insurance.
- Leaving the home vacant for over 60 days.
- And sometimes non-renewal can be due to reasons outside your control such as the company deciding to drop coverage in your area or state.
Is Your Insurance Company Friend or Foe!
Life isn't perfect. You'll probably get a cancellation or non-renewal notice at what feels like the worst time possible … it happens to all of us. Try to look at the news as a blessing in disguise rather than the insurance company trying to hurt you (I know that's hard to do).
My expectation is we'll see more random audits because homeowners aren't taking care of their homes the way they used to. The concept of preventive home maintenance isn't understood by most homeowners, so problems happen. It might be a lot easier to accept if there were published maintenance schedules like the ones car service departments provide.
Your home is a living, breathing puzzle with lots of moving parts. When you learn how to respect your house and take care of it, you'll avoid these problems and save a lot of money. We're here to help you not just understand the financial side of home ownership. My goal is to help each and every homeowner save money and enjoy their home more through consistent home maintenance!
This article was updated to reflect problems I had dealing with a flooded house. It was not fun learning how to deal with all the insurance industry games. It's pretty ugly so you might want to read Why Your Insurance Company is NOT Your Friend! The links below provide some other areas to help you understand the complexities of homeowner insurance.
- The Right Way to Buy Homeowners Insurance
- Home Insurance Protects You From What?
- Looked for but couldn't find any sample insurance company checklists. What I found were comprehensive inspection report templates offered by the International Association of Certified Home Inspectors (InterNACHI).