Insurance guide for older homes
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Owning an older home can be a dream for many people. These homes were built in prime locations, contain larger rooms than many newer homes and have loads of charm. But people who own homes 50 years old or more may run into insurance problems they didn’t bargain for when they fell in love with the house.
The majority of mortgage lenders require homeowners to have home insurance as a condition of their mortgage, but older homes have many problems that make them a bigger risk to insure. Many times, elements of the house may be so worn out that insurance companies will refuse to insure the house without some repairs or replacements.
What’s the difference between old and new homes when buying insurance?
Having homeowners insurance is extremely important, regardless of your home’s age. Home insurance helps pay to repair or replace parts of your home that get damaged during covered events, like extreme weather, fire or a burglary. Without a homeowners insurance policy, you’ll have to pay for those repairs out of pocket.
The insurance company will absorb much of the risk for you. You pay the provider a monthly fee–called your premium—and in return, the company promises to reimburse you for covered losses.
Insuring older homes is much riskier for insurance companies. Older homes are more susceptible to damages like fires or roof problems. It might be more difficult for you to get a policy for an older home. If you are approved, you can expect to pay a higher premium than someone with a newer home.
To determine your premium, the insurance company will look at the replacement cost value of your home. The replacement cost is the amount of money it would take to replace your home under the current market conditions. Replacement costs for homes that are antique or historic are also higher because specialized materials and labor are required to restore the home to historical accuracy. For example, you may need to repair plaster walls and ceilings, skills that only a limited number of contractors can provide.
A home inspection can help reveal the age of a home’s components, whether you’ve just put in an offer or have lived in the house for years. Many insurers will perform inspections to determine if the home is insurable and calculate its replacement cost value. If your home has a higher replacement cost, the provider will likely want to do a more thorough inspection.
Are older homes more expensive to insure?
Older homes typically cost more to insure. Repairing an older home requires special materials and craftsmen with skills that are hard to find. For instance, many older homes have plaster ceiling and walls, ornate trim and non-standard doors and windows.
If part of an older home sustains damage, you may need to employ a woodworker who can reconstruct a door or recreate stained glass windows that aren’t available on the market.
Older homes also pose more risk than newly constructed houses, because they were made with materials that are less resistant to fire and weather. Many contain original wiring, which can wear on or tear insulation, or original plumbing with decades of corrosion damage. The sum of these problems adds much greater risk to an insurer. To offset the risk, the provider will charge a higher premium for an old home.
What type of home insurance policies cover old homes?
If you’re looking to save money on homeowners insurance, you could opt for a basic policy with a minimal amount of coverage. However, it’s probably not the best option, given the expense of maintaining and repairing an older home. To get the coverage you need, we recommend looking into high-value homeowners insurance or an HO-8 policy.
High-value homeowners insurance
High-value homeowners insurance is a type of insurance that protects homes with an above-average value, typically $750,000 or higher. It’s ideal for people with older homes that were built using construction methods that are no longer common. A high-value insurance plan has larger policy limits than a traditional homeowners policy, which is important if your home has a high replacement cost value.
For example, if you buy an older house on the historic register, you will face two challenges. First, your home will have all the problems of other old homes, like old plumbing and wiring and elements that require specialists to repair or replace. Plus, the National Register of Historic Places will impose even higher standards for restoration and repairs to ensure that your home remains true to its original construction.
If you purchase a large older home that is not on the historic register, you may also need the protection of a high-value homeowners insurance policy. By nature of age and design, many older homes have a higher market value, particularly if they lie in a desirable neighborhood.
Such neighborhoods often have homeowners associations that impose strict standards on the maintenance and restoration of all homes. These standards require the quality of coverage that only a high-value homeowners policy can provide.
You could also consider an HO-8 policy, which is a good option if the replacement cost value of your home is greater than the current market value. These types of policies are available to owner-occupied homes and are commonly used to insure older homes, registered landmarks or other architecturally unique houses. HO-8 policies also tend to be cheaper than conventional home insurance policies.
Shopping around is important when looking for home insurance, not only for the right price but also for the right coverage. If you care about preserving the original features of your home, make sure your policy will pay for the materials that are no longer standard. Consider these possibilities:
- Lath and plaster: Older homes often have walls constructed with lath and plaster instead of sheetrock. Sheetrock is cheaper but maintaining lath and plaster construction is important if you want to retain your home’s original authenticity. Ask your insurance provider if they will let you make repairs with lath and plaster regardless of the cost.
- Lumber measurements: Another consideration to make is your home’s lumber. Today, two-by-fours are only 1.5-inches by 3.5-inches, which may not match the size of wall studs and ceiling joists in many older homes. Some insurance companies might want to replace the lumber with the newer size, but you need to retain the original dimensions to maintain your home’s original construction.
Other added costs to consider are custom molding, solid core doors and trim that must be custom-made. Anyone with a historic home should make sure they find a company that will insure them for the full replacement value for original features. Some companies have a cap on replacement cost at the insured value. You need a company that will rebuild the home to the quality you had regardless of the amount.
Watch out for any cash value policies. These will only pay for what’s damaged, minus depreciation, so you could be covered for much, much less than you need or even realized with one of these policies.
Many insurers only pay a depreciated value on HO-8 policies, which is the major drawback of this type of coverage. After depreciation, the settlement you receive may not provide enough money to restore your home to its original splendor.
However, an HO-8 policy costs much less than a high-value homeowners policy. If you own an old home that is not on the historic register and have a replacement cost value of less than $750,000, an HO-8 policy may provide adequate protection.
HO-3 policies are the most common type of homeowners insurance. The HO-3 covers losses caused by the most common perils you might encounter such as explosions, fire and lightning, hailstorms and windstorms, malicious mischief and vandalism, smoke and theft. HO-3 policies typically include medical payments to others, personal liability and personal property coverages.
An HO-3 policy could provide good protection for an older home that has been renovated and brought up to current building code. For example, if your home’s original plumbing and wiring have been replaced with modern materials, it’s plaster walls replaced with sheetrock and its original clapboard exterior updated with modern vinyl siding, an HO-3 policy would provide excellent coverage.
In the long run, upgrading your older home with modern materials that meet current standards and building codes can save you a lot of headaches and money in the long run. Cosmetic upgrades such as exterior siding and interior sheetrock are good home improvements, but it is important to replace major systems, like plumbing and wiring.
If your home still has its original plumbing and wiring, you will need to buy a law and ordinance (L&O or O&L) rider for your HO-3 policy, which provides extra coverage to rebuild or repair your home to current building codes.
What coverages to consider when buying insurance for older homes?
Getting an insurance policy with replacement cost coverage can be a lifesaver for owners of older homes. However, there are other types of optional coverages that can give you added peace of mind.
Guaranteed replacement cost coverage
Guaranteed replacement cost coverage pays the full cost of repairing your home, even if it exceeds your policy’s limits. That includes the exterior structure, as well as interior components, like flooring and appliances.
Water backup and service line coverages
Water backup coverage pays to repair or replace the water pipe that connects your home’s water system to the water main. Service line coverage can help pay to repair or replace home infrastructure, like gas pipes, home network wiring, sewer pipes and water pipes. Standard home insurance policies provide little or no coverage for water backup and service line losses, which makes both of these optional coverages essential.
Scheduled personal property coverage
If you have expensive valuables inside your home, consider getting scheduled personal property coverage, which provides more coverage than your standard insurance policy. This type of coverage usually applies to jewelry, art, firearms, instruments and expensive electronics.
Roof replacement coverage
Most homeowner insurance policies will help you pay to replace your roof if it’s damaged by a covered peril. But for older homes, the coverage is limited. With roof replacement coverage, your insurer will help pay to replace your roof, even if you own an older home.
If you’re already facing a high premium, you might be hesitant to pay even more to add coverage to your insurance policy. However, not having enough coverage means you’ll probably pay out-of-pocket to cover some of the costs. Adding more coverage to your policy means paying more upfront, but it can save you a significant amount of money in the long run.
How to save money on home insurance for an old house
If you already own an old house, you may worry about your insurer raising your premiums significantly or even dropping your coverage altogether if you file a claim. Many insurance companies change the status of your coverage if you file a big claim or several claims in a row. But there are steps you can take to keep your premium affordable and ensure that you won’t need to file a claim.
Stay ahead of repairs and updates
Maintain a regular maintenance schedule. Regularly inspect your home for signs of leaks and damage to ceilings, floors and walls. Clear debris from gutters, change heating and air conditioning filters, remove mold and maintain a comfortable temperature in your home to prevent pipes from freezing and paint from peeling. When problems appear, make repairs immediately to prevent further damage.
Keep your home’s replacement cost estimate up to date
Making home improvements can increase your home’s market value, but it also increases the cost of replacing it. If you add an extension, replace major systems, install new windows or replace your roof, always adjust the replacement cost value on your homeowners policy.
Choose a higher deductible
Raising your deductible is the easiest way to reduce your premium. If you have money in savings, consider raising your deductible to $5,000 or more. By paying out of pocket for minor losses, like a broken window or damaged appliance, you can avoid the risk of a rate increase for filing a claim.
Bundle home with another policy type
Most major insurers offer discounts for bundling your home insurance with other policies, such as auto insurance, boat insurance, business insurance or condo insurance. For instance, Allstate policyholders can save up to 25% on premiums when they bundle auto and home insurance policies.
- Older homes are more expensive to insure than newly constructed houses
- Insurers offer several types of policies for older homes
- Optional coverages ensure you have adequate protection
- You can reduce your premium and avoid rate increases by not filing claims
If you buy an older home, you can expect to pay a higher premium for homeowners insurance. Old homes cost more to rebuild or repair, so insurers mitigate their risks by charging higher rates.
Insurance carriers offer several types of insurance for older homes, including high-value homeowners policies, HO-8 policies, and HO-3 policies.
To avoid rate increase, avoid filing claims. You can reduce your rate by lowering your deductible and paying out of pocket for minor losses. By staying on top of home repairs and maintaining a regular maintenance schedule, you can avoid losses from occurring and prevent a rate increase that can occur after filing a claim.