Buying? Consider Insurance Implications
by Michele Dawson
With the chaotic spring home-buying season in full gear, would-be buyers are getting pre-approved for mortgages, researching school districts, and looking at houses. But one thing that should be added to the to-do list is considering the insurance implications of buying a specific house.
Home sales so far this year have been strong, and experts expect a robust pace to continue this year.
Existing single-family home sales rose strongly in March to the second-highest level on record, according to the National Association of Realtors.
Existing-home sales increased 5.7 percent to a seasonally adjusted annual rate of 6.48 million units in March from an upwardly revised pace of 6.13 million units in February. March's sales activity was 12.7 percent above the 5.75-million unit level in March 2003; the record is 6.68 million in September 2003.
"Although interest rates are rising modestly, an improving job market is creating a favorable backdrop for home sales, but at a somewhat slower pace in the months ahead," said David Lereah, NAR's chief economist.
When consumers are house hunting, the Insurance Information Institute (III) recommends keeping insurance issues at the forefront of their buying decisions.
"In the frenzied excitement of buying a home, it is important that consumers ask a number of key questions about securing financial protection for their most valuable asset," said Jeanne M. Salvatore, vice president, consumer affairs at the III.
For example, if the house you're eyeing is located in a flood zone, you'll need a separate flood insurance policy, which you'll need to budget a few hundred extra dollars for.
The III says you should also get a copy of the house's claim loss history, which comes in the form of a CLUE report from ChoicePoint or an A-plus report from the Insurance Services Office.
"Getting a copy of a home's loss history provides powerful information to a potential buyer," said Salvatore. "These reports provide information on the number and types of homeowner insurance claims filed by the home's owner going back five years."
If the house had water claims, that would be a red flag -- problems that should be remedied before you buy the house. Conversely, you can also pick up reassurances about the house you're eyeing, Salvatore said. For example, if there was significant wind damage that required roof replacement, you'd be pleased to know you have a new roof.
The III says some of the factors that will influence your insurance include the house location, the type of construction, and its condition. You should also consider:
How old the house is. Older homes tend to have features -- plaster walls, ceiling moldings and wooden floors -- that are more expensive to replace and may ultimately raise the price of your insurance.
Plumbing, heating and electrical. The older the systems, the more likely fire or water damage will occur. If recent upgrades have been made, it will be easier to get insurance.
Quality and closeness of fire department. Your insurance premiums will typically be lower if you live near a fire department with a top rating that staffs firefighters full-time.
Disaster-resistance. If the house is built with products that stand up to disasters -- like hail-resistant roofs and windstorm shutters -- it could cost you less to insure.
Location. You always hear location is key in real estate. It's also important in determining your insurance premium. It could cost you more if you leave near the coast or a river or in a dense, wildfire area. If you live in an earthquake-prone area, it will mean getting a separate policy, as is the case with flooding.