What to Expect In a Home Inspection for Insurance Purposes

Inspector walking through home with tablet doing insurance inspection

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When Do You Need an Insurance Home Inspection?

If you recently purchased a home and are looking for insurance one of the first things you will need to think about is how much to insure your home for. People often think the purchase price is the value they want to insure for, after all, it makes sense to insure for the price you paid, right? Unfortunately, this approach does not adequately give the true value to rebuild your home. Insurance companies, brokers, and agents often have tools to estimate the reconstruction value of a standard home, but if there are special features or materials used in the construction of your home, then it might be better to have an insurance home inspection to make sure you have the right amount of insurance. Older homes or high-value homes may also require insurance home inspections to get insured.

3 Benefits of an Insurance Home Inspection

  1. Identify potential risks that could cause safety issues or losses, so that you can address them and avoid claims.
  2. The home inspector may identify different areas where you would be eligible for discounts on your home insurance policy that you did not already have.
  3. Making sure that the insured dwelling value is not too high or too low. This could save you money. Learn more about this in How to Negotiate a Change in Your Home insurance Value.

What Are Home Insurance Inspectors Looking For?

Home insurance inspectors will be looking for three basic things when they inspect your home:

  1. Opportunities to increase security, or safety. Including looking for potential fire hazards or liability risks in how you maintain your premises.
  2. Take measurements of the building; look for special features, and check the quality of materials used in the construction of your home. For example, homes with high ceilings, dormer windows, additional structures, marble or specialty floors. They will also identify if you require specialized architects or interior designers. This helps determine the reconstruction cost. They may take photos.
  3. Check if there have been updates to the electrical system, plumbing, heating, windows, roof and that everything is well maintained.

How to Prepare for an Insurance Home Inspection

Here are a few things to have handy and help you prepare for a home inspection:

  • Documentation showing square footage of your home
  • Details about costs for renovations or interior design work
  • Information about your alarm system, water sensors, water damage prevention devices or security features (this could get you discounts on your premium)
  • List of the updates to your plumbing, heating, electrical, windows and roof

Most importantly, make sure your house is tidy. Take time to look at your living environment and think about fire hazards and accident prevention. For example: Are walking areas clear so people can walk safely, do staircases have guardrails, etc.

If your home is full of unusual amounts of clutter, has mold or signs of old water damage, the inspector will be looking out for this. If you have a problem that you have plans to fix, let them know, it can help.

What Is the Difference Between a Real Estate Home Inspection and an Insurance Home Inspection?

For one, the real estate home inspection is to point out:

  1. Potential problem areas and repairs so that you know what you are buying, but it does not have anything to do with verifying the reconstruction cost of the dwelling.
  2. For the bank to check if the value of the home is worth the mortgage they are going to give you for it.

The purpose of the two inspections are both very important for you as a homeowner, but these inspections protect different things:

  • The bank is interested in protecting how much money they are lending you. The real estate inspection is to let you know what costs you might have in repairs. This helps you figure out if the house is worth buying and at what cost.
  • The insurance company is interested in rebuilding your home with new materials and giving you back the same property you just lost. It is also interested in making sure you do not have unnecessary preventable claims.

The insurance inspection will focus on loss prevention and may include recommendations regarding liability or other risks. The home inspection for real estate does not usually focus on liability concerns.

The final aspect of the home inspection for insurance is to determine where updates or renovations may be required. This is similar to what you might find out in a real estate home inspection.

What is The Difference Between Real Estate Value and Home Insurance Value?

Following a home inspection, the insured value of your home may increase beyond the purchase price paid or bank assessment value. It may also go down.

The best way to understand why this would happen is to think about how much your home would cost if it was magically transported and put into the most exclusive neighborhood you know. It would probably cost 3-5 times the amount to buy even if it was the same exact home. Alternately, imagine your home gets magically transported to a very undesirable industrial area where home values are low, suddenly the price you pay is 1/3 of the cost. In both these scenarios, the reconstruction of the home to replacement value would roughly remain the same, despite the fact that real estate value would be different. Dwelling insured value remains the same even when real estate markets are high or low; it is based on construction not selling.

What If the Home Inspector Makes Recommendations, What Does That Mean?

In some cases after an insurance inspection, you may have recommendations. Insurance companies make recommendations because they are trying to help you avoid claims. Recommendations are suggestions or requirements for improvements to the safety of your home. It is important to read them carefully and ask your insurance representative if you have any questions. Your insurance could be canceled if you don't complete recommendations. If you feel the recommendations are unreasonable you can try to negotiate with your insurance company. Learn more about this in: What To Do if Your Home Insurance Is Being Cancelled For Not Doing Repairs and Tips to Work With Your Home Insurance Company About Repairs