Older homes have charm and character. With beautiful architectural details, quality craftsmanship, neighborhoods that feature mature trees, and the fact that they are far from the cookie-cutter approach to building that is so common, many home buyers seek out older homes.
All of that beauty and originality comes at a price, however. It can be very expensive to insure an older home.
Why is it harder to get insurance for an old house?
There are two big reasons why it is harder to get insurance for older houses: risk and replacement costs.
As a home ages, the chance that an expensive system will fail increases. With much older homes, there are frequently older elements that may increase the risk of fire, such as portions of the home having knob-and-tube electrical components, aluminum wiring, or simply older and frayed wiring. Even in the best-maintained older houses, these elements represent increased risk, and that leads to higher premium costs.
The availability of replacement materials is another reason that it is harder and more expensive to insure an older home. Homeowners insurance is designed to help rebuild a home in the event of a covered loss, so having access to the materials needed is part of the equation in determining the replacement cost of a home.
Older homes can have many wonderful details such as molding and trim, pocket doors, and curved wood staircases, that can be very difficult to source when replacements are needed. This scarcity increases the replacement cost.
What special coverage is needed for older homes?
Older homes come with different expenses and additional risks, so standard homeowners insurance policies frequently are not the right fit. In fact, some older homes might not even qualify for a standard homeowners insurance policy.
If you are interested in purchasing a home that is 40 years old or older, your insurance agent might talk to you about an HO-8 policy.
What is an HO-8 policy, and how does it differ from standard homeowners insurance?
Homeowners insurance is divided into categories that best serve the needs of individual homeowners. Insurers refer to these types by using the form number—HO stands for “homeowner” and the number that indicates the type of policy.
For example, an HO-4 is known as a “tenant’s form”—meaning it is designed for renters. An HO-7 is a mobile home form. The risks and needs of a renter are vastly different than the risks and needs of a mobile home owner, so these form types help to ensure that variable home types are protected.
Older homes have specialized forms too. These are known as an HO-8, or modified coverage, form.
An HO-8 policy carries many of the same protections as standard homeowners insurance policies, but with more restrictions that address the specialized risks older homes represent.
Another common feature of HO-8 policies is a narrower list of 10 covered perils. These include:
- Damage from fire or lightning
- Smoke damage
- Explosion
- Hail/Windstorm damage
- Riots
- Theft
- Vandalism
- Damage by a vehicle (not the homeowner’s)
- Damage by aircraft
- Volcanic eruption
These 10 covered perils are usually the only named perils that qualify for filing a claim under an HO-8 policy.
Actual cash value, replacement cost, and functional replacement
One of the primary features of an HO-8 policy is that it typically only covers your home and personal belongings at an actual cash value level, rather than replacement cost. This means that depreciation is factored in, if you experience losses in a covered event.
Simply put: with an HO-8 policy, if your home is a total loss after a fire, your insurance will cover items at their (depreciated) cost, and not at the actual amount it costs to replace the items.
Some insurance companies offer what is known as “functional replacement cost.” This acts as sort of a middle ground between replacement cost and actual cash value, in that it allows for an older home to be restored using modern materials, rather than an identical replacement.
For example, if an older home that used chestnut wood in its original construction is damaged by a covered event, “functional replacement cost” would allow for another, more widely available wood to be used in a rebuild. Chestnut is no longer readily available as a building material, so would be prohibitively expensive to source.
I’m looking at an older home—am I required to get an HO-8 policy?
Homeowners with older homes will not always need an HO-8 policy. These policies are designed for homes that, due to certain features or because they were built using outdated construction methods, are likely unable to qualify for standard homeowners insurance.
For example, if you are looking to purchase a home that was built in the 1970s that was renovated extensively in the early 2000s, with updated wiring and plumbing and other new systems, you will likely qualify for a standard homeowners insurance policy.
However, if you are purchasing a home that was built in 1980 that has not had any substantial updating done to the house electrical or water systems, the home probably will not qualify for standard insurance coverage, and you will need an HO-8 policy.
An HO-8 policy is a coverage option available to homeowners when a home does not meet the standards of a regular homeowners insurance policy.
How can I insure a home with historical significance?
Homes with historical significance carry a lot of additional factors to consider when insuring the property, and you’ll need to provide as much detail as possible to make certain you are securing appropriate coverage.
For instance, some towns with historical significance have restrictions on the types of materials you are permitted to use to make repairs. This is to ensure the town retains the historical character and appearances, but it can result in big bills for homeowners.
In many historical areas, like Old Georgetown in the Washington, D.C. area, there are design standards homeowners must adhere to when renovating, and an advisory board to review exterior construction.
The National Trust for Historic Preservation has some tips for homeowners trying to insure historic properties, but acknowledges that the ability to do so is becoming increasingly difficult. There is tension between insurers, who want to reduce risk by using updated materials that are more fire- and disaster-resistant, and historic districts intent on preserving character and charm. Historic districts located in hurricane-prone areas, such as the Carolinas, face even more challenges given the damage caused by strong storms.
Homebuyers interested in a historic property or a home in a historic district must be ready to provide information such as design standards and requirements to their insurer—and be ready for a high premium quote. Bear in mind that a decline to cover may be inevitable—many insurers simply do not want to carry the risk associated with historical properties.
If you are struggling to find coverage for an older home, contact Rate Insurance. With experts on staff and access to a wide range of insurers and policy types, they can help you to find the right coverage for your home.
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All information provided in this publication is for informational and educational purposes only, and in no way is any of the content contained herein to be construed as financial, investment, or legal advice or instruction. Rate Insurance does not guarantee the quality, accuracy, completeness or timelines of the information in this publication. While efforts are made to verify the information provided, the information should not be assumed to be error free. Some information in the publication may have been provided by third parties and has not necessarily been verified by Rate Insurance. Rate Insurance, its affiliates and subsidiaries do not assume any liability for the information contained herein, be it direct, indirect, consequential, special, or exemplary, or other damages whatsoever and howsoever caused, arising out of or in connection with the use of this publication or in reliance on the information, including any personal or pecuniary loss, whether the action is in contract, tort (including negligence) or other tortious action.
