Don’t overlook the home insurance inspection
What is included in a four-point inspection?
- Electrical system
- Heating, ventilation and air conditioning (HVAC)
When financing and buying a home, you give your lender a lot of attention. Yet there’s another party in the purchase equation that should not be neglected: the insurance company. Failing to qualify for homeowners insurance can put the brakes on your closing faster than you can say “four point inspection.”
Lenders usually do not require a home inspection to close a loan; they are primarily concerned with the value of your property, which is determined by the home appraisal. Lenders do, however, require borrowers to carry homeowners insurance — which may require a home inspection. Thus, in a way, your mortgage may be contingent on the inspection, too.
What is a home insurance inspection?
Insurance companies may require a specific home inspection to determine your eligibility for homeowners insurance. Called a four-point inspection, it differs from the standard home inspection you obtain when considering whether to purchase a house. This standard home inspection looks at structural and cosmetic elements of the home, including a cursory look at the roof. A four-point inspection, however, checks the age and condition of four home systems that are the common causes of most insurance claims: the roof, plumbing, electrical system, and the heating, ventilation and air conditioning (HVAC).
Insurers interpret four-point inspections differently. Typically, insurance companies are concerned with the age, condition and sometimes the manufacturer or type of installation of the systems. For example, many insurance companies will not insure a roof that is more than 20 years old. Others may not insure an electrical system issued by a specific manufacturer that has resulted in a number of previous claims. Some insurance companies will also want to check the home insulation, walls, foundation, doors and windows.
Insurers may not ask for a home inspection if your house is relatively new. As many systems in a home only last 15 to 20 years, however, if your home is older than 25 years, you can expect that a certified home inspection will be required.
In general, insurance companies won’t accept a home inspection as a substitute for a four-point inspection. Many home inspection companies offer discounts for homeowners insurance inspections if they performed your original home inspection, however.
Can you fail a home insurance inspection?
A home inspection is not a test, it’s an assessment of the condition of your home. Just as you can’t “fail” a doctor’s examination, your home can’t fail an inspection. The inspection can offer insights for improvements, but it is up to the buyer and seller to determine the next course of action.
Insurance companies, on the other hand, have their own standards for property conditions that are eligible for coverage based on their interpretation of the four-point inspection. If the insurance company determines that your home is too risky for a policy, the home has effectively “failed” their inspection.
In addition to the home inspection, other factors that could prohibit you from obtaining homeowners insurance include:
- Being in an area prone to hurricanes, flooding or other natural disasters
- Too many claims filed on the same home, even if they were by previous owners
- Dangerous pet breeds that could result in a liability claim
- A history of not paying your premiums
- Poor credit
Can’t get insured after a home inspection?
If the insurance company decides that you do not qualify for a policy after an inspection, there are steps you can take to still get coverage.
- Try a different insurer. While this may be the cheapest and fastest solution, it is also the riskiest. There is likely a good reason the initial insurance company wasn’t comfortable with the condition of your home. Ensure that all systems in your home are in safe, working order before considering an alternative insurer.
- Repair or replace the deficient system. It can be costly, but the failsafe way to qualify for coverage is to bring your home up to the insurance company’s standards.
- Get additional certification. If your roof is the offending factor, getting a roof certificate may make the insurance company reconsider. A roof certificate is issued by a professional roofing company and estimates how many more years the roof will be in good working order. A certificate typically lasts two to five years.
- Buy a special insurance policy. Commonly used by house flippers, there are policies for riskier properties that are pending repairs, such as builder’s risk, vacant property, surplus lines or assigned risk policies. Premiums will be much higher, however, so it is best to use such policies in the short term and switch to conventional homeowners insurance as soon as you can qualify.