Insuring a home can be expensive. As my wife and I discovered after closing on the purchase of the Neebor Lee house, insuring a home that is more than 100 years old can be a great deal more expensive. If you have a mortgage it is highly likely that you will be required by the lender to carry enough insurance to cover the home’s replacement value. For a home constructed after 1950, that is not a big deal. For such a younger home the replacement value would likely be close to the home’s market value since building materials used at the time of construction are still readily available.
That is not the case for a home built prior to 1900. Building materials used in the construction of such older homes are not readily available, if at all. In addition, the methods used to build it are not easily duplicated except by specialty contractors. As a result, the replacement value for an older home will be significantly higher than the home’s market value. And this will be reflected in the insurance policy’s premium in you are carrying a mortgage. For example, we purchased the Neebor Lee house for $335,000. The replacement value for this home was later estimated by the insurance provider to be $998,000. Thus, we found ourselves insuring a $1 million home instead of the $335,000 home. The cost of the resulting premium was a surprise that my wife and I did not expect when we began looking at older homes to purchase.
And the high premium wasn’t the only surprise we encountered with regard to homeowner’s insurance. It turns out that there are not many insurance companies willing to insure an older home. This lack of competition will drive the premium even higher. To help address this issue we engaged an insurance broker rather than approaching individual insurance providers directly. Insurance brokers will know which providers offer insurance for older homes and will shop around on your behalf in order to find the best deal. In addition, as we discovered first hand, a broker will fight on your behalf if a disagreement arises between you and your insurance provider. Our disagreement with our insurance provider occurred within months of taking ownership of the Neebor Lee. It started when the insurance company sent an inspector to evaluate the condition of the house. What was unknown to us at the time of our purchase, besides the high cost of the insurance premium, was that if you own a home that was constructed prior to 1900, the insurance provider will automatically send an agent to inspect it. The purpose of the inspection is to assess the condition of the house to determine whether the house meets current building costs as well as to identify repairs that will need to be made in order to reduce the likelihood of future claims. As I’m sure every owner of an old home knows, the likelihood that every element in the house will meet current construction code is essentially nil. Equally unlikely is the fact that no repairs will need to be made. Rarely will you find a house more than 100 years old that doesn’t need any repair work. Two to three weeks after our inspection, we received a certified letter from the insurance provider. That letter, received in mid-October 2013, presented a list of repairs that were required in order to maintain our homeowners insurance. And the time allotted by the insurance provider for completing those repairs was only two months. If the repairs were not completed within the allotted time then, according to the letter, the policy would be terminated and the home dumped into the State’s high risk insurance pool. Among the items on the list were:
- Remediation of the tree limbs overhanging and touching the dwelling roof;
- Repair the exterior walls of the detached living area or lodge;
- Removal of debris from the gutters of the lodge;
- Repair the exterior walls of the Servant House and the lodge, including the replacement of missing and rotted clapboards;
- Repainting of the Servant House’s exterior walls;
- Replacement of broken windows in the Servant House;
- Clearing of debris and moss from the roofs of the Servant House and the lodge; and,
- Repair of the Servant House roof, which I readily admit was in pretty bad shape.
Ironically, no repairs were required for the main house. Cleaning the gutters and removing moss and debris from the two outbuilding roofs were simple enough and could be easily completed within the time allotted, as would be the replacement of broken windows. The replacement of missing and rotted clapboard, repairing (in essence, replacing) the roof of the Servant House, scraping old paint to the bare wood on exterior walls and then painting those walls at the onset of winter in only a few weekends was unreasonable and downright crazy. Sure, we could have hired a contractor to do all of this work in the time allotted, but we had only recently closed on the house and had not yet sold our New Jersey home; we just didn’t have the cash on hand to hire help. In addition, I had repairs that required more immediate attention in the main house, including a furnace that was malfunctioning and a basement that was prone to significant flooding (more on that in a future post). My first thought after we received this letter was to buy time. I could do the work requested by the insurance provider in large part by myself, but not in the winter and not within the two months allotted. In our response to the provider we noted that there were many historical elements associated with these two outbuildings, and that to rush repairs without proper research and obtaining the correct materials could negatively impact their condition and value of the property. And then there was the issue of weather. I couldn’t be expected to paint exterior walls when temperatures are below freezing. With this information in hand, our insurance broker battled the insurer and obtained an extension. We would be given one year to complete the requested repairs with the deadline being the date of the renewal of the policy. So, I cleaned the gutters (which were so old as to have no bottoms; they were completely rusted through), removed the debris from the roofs, replaced broken windows and then waited for the Spring in order to complete the work. It was just as well since we had a particularly brutal snow-filled winter. We had so much snow, in fact, that the side overhang on the Servant House collapsed due to the weight of the snow. I could have filed in a claim for that, but thought better of it at this stage of the repairs; I did not want hand the insurance provider an excuse for dropping us into the high-risk insurance pool.
Winter passed and Spring finally arrived. I purchased the replacement clapboard after some searching and special ordering, replaced the missing or rotted clapboard on both of the outbuildings and, for good measure, installed flashing along the foundations to keep the clapboards off the ground, where moisture had caused a great deal of rot and damage. This was followed by many weekends scraping the peeling paint off the Servant house and the front exterior wall of the Mason Lodge, followed by priming and repainting. Repairs, which were not on the insurer’s list, also needed to be made to the cement porch in front of the Mason Lodge, which had opened up near the building’s footings to expose the Lodge’s basement to the elements. In addition, I sprayed the moss growing on the roof of the Servant House with several rounds of a Clorox®/water mixture in order to kill it, followed by the scraping of the moss off the roof after it had died (I have since replaced the roof and underlying roof decking of both the Servant House and Mason Lodge, both of which had been leaking). Finally, I hired Bartlett Tree Service to trim trees and to remove overhanging limbs at a cost of $2600. I was well on schedule to meeting the August 1st completion deadline.
However, my interpretation of the “renewal date” and that of the insurance provider differed. I interpreted the “renewal date” as the date when the old policy ended and the new policy began. The insurance provider’s interpretation was that it was one month earlier, on the date the first renewal notice was to be mailed to the insured. Thus, instead of receiving that first renewal notice, we received a letter cancelling our policy. That letter, which was copied to the State’s insurance commission, included harsh language alleging that, in essence, we were deadbeat homeowners. Obviously, the allegation was untrue. At the time we received that letter, all requested work had been completed except for the painting of replacement clapboards that had already been attached to the front of the Mason Lodge. In my mind, I still had a month remaining to complete the work. So, we again entered into a fight with the insurance provider in order to avoid getting dumped into State’s high risk insurance pool, which would have significantly increased the insurance premium even more than we were already paying. We again engaged our insurance broker for support but also filed a notice of protest directly with the State’s insurance commission. Just as the policy termination date approached, we received a letter from the State insurance commission stating that the insurance provider had reconsidered and was moving forward to renew the insurance policy. The lesson gained from this experience is that if you plan on purchasing an older home, particularly one that was constructed prior to 1900, be aware that you are likely to have an insurance premium that is much higher than what you may have anticipated. In addition, be sure to have cash on hand after your closing to implement repairs that the insurance provider is likely to request as a condition of maintaining your homeowners insurance. Lastly, don’t hesitate to use your broker and the State’s insurance commission to push back on unreasonable requests and schedules imposed by the insurance provider. Insurance for an old house is more complicated than on newer homes. However, the best defense against difficult insurer is to be proactive with your repairs and renovations and don’t be afraid to push back when the insurer subjects you to unreasonable conditions. On the up side, however, its pretty neat to know that we own a home that is valued at $1 million due to its old-school craftsmanship and its unique construction and antique hardware. I just hope that we never have to file a claim.