A home inspection isn’t automatically required whenever homeowners insurance is purchased, but since the real estate bubble burst, insurance carriers have more frequently been requiring them. They provide both the homeowner and the insurance carrier with a very accurate assessment of a home’s actual replacement cost. They also alert a house shopper, homeowner or insurer to existing problems that must be corrected quickly.
Insurers can choose to require a home inspection as a condition for obtaining homeowners insurance, especially if you own an older home.
Assessing Home Replacement Cost
Homeowners insurance pays for losses caused by fire or other events specified in the policy. When a home is completely destroyed, homeowners insurance generally pays the replacement cost, which refers to the cost to rebuild the house from scratch. Depending on the area, especially after the real estate bubble burst, this may be significantly different from the house’s market value. The older the house, the greater the likelihood that the insurance company will order an inspection prior to insuring the property.
Types of Home Inspections
Homebuyers are sometimes confused when a property they want to purchase passes a home inspection, but is then deemed uninsurable because of a home inspection ordered by the insurance company. This is because there are two types of inspections.
The first is oriented toward a home’s marketability and is often used when performing appraisals. While such an inspection specifically addresses issues of code compliance, it doesn’t address issues of insurability. For example, the first inspection may certify a house’s roof, while an insurance inspection may disqualify the same house because its roof is older than the insurance carrier’s underwriting maximum age allowed.
Understanding Liability Issues
Homeowners insurance also often provides liability coverage. This refers to if someone is injured on the property. The homeowners insurance may cover the costs resulting from the injury. For example, if a pedestrian trips on an uneven sidewalk, the homeowners insurance may have to pay the pedestrian’s medical bills.
An insurance home inspection would specifically look for such hazards, both outside and inside, as well as inspect for such routine things as electrical and plumbing code compliance and an operational smoke detection system. In some cases, the insurance company will order only an exterior inspection, which includes the grounds and a visual examination of the house’s exterior.
Importance of Maintenance
As a general rule, routine maintenance not only keeps a home looking good, but it also protects the structure. Regular painting of the exterior, for example, helps seal the exterior shingles and trim, keeping out water and insects that could threaten the home’s structural integrity. Accumulation of debris in the yard could be considered a fire hazard. If there’s a swimming pool on the property, the fence surrounding the pool area must be in good condition.
Simple maintenance issues such as these, if not routinely taken care of, can show up as adverse comments on an insurance inspection.
Correcting Identified Problems
If an insurance inspection finds problems, the homeowner is notified as to the specific issues identified. This notice also frequently notes what steps should be taken to fix the problems and the time frame within which they must be addressed. While it’s often a matter of routine maintenance, it should not be taken lightly. Failure to correct any deficiencies in an insurance inspection may lead to the policy’s cancellation.
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