Risky Business: Managing Risk in the Modern World

What Every Real Estate Agent (and Homeowner) Needs to Know About Insurance

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Real Estate Agents take on a great deal of responsibility when they guide us through the process of purchasing a home; knowing the basics of property insurance to point clients in the right direction is an important part of confidently brokering a home sale.

Under what circumstances should a buyer be concerned about special coverage?

A Vacant Home

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Vacant homes are at higher risk for most causes of claims. Vacant properties are broken into more often, and what would have been a smaller claim like a pipe bursting can be catastrophic if unnoticed for a time.

A vacant property also has the same kind of liability risks as any other premises, even a trespasser who breaks into the home can sue for damages from an injury at the vacant location.

Why should vacant home insurance minutia matter to Real Estate Agents? Well, because most standard homeowners policies exclude coverage after a home has been vacant for 30/60 days (the time limit varies depending on the coverage and the company), which means new homeowners or sellers who don’t know to get the right policy may find themselves with an uncovered claim.

Don’t let this happen to your client.

“Is it in a Flood Zone?” Have you been asked this before?

Insurance professionals think that is the wrong question because we all live in a “flood zone”; any place is capable of flooding given the right conditions. Even historically dry areas have been known to flood without warning. And Homeowners policies do not cover damage caused by flooding.

Homes at high risk of a flood may not be eligible for financing without flood insurance, but that does not mean only those homes need flood insurance. Homes and buildings outside of high-risk zones account for about 25% of all National Flood Insurance Program claims and they receive one-third of Federal Disaster Assistance for flooding.

Reconstruction Cost vs Market Value

In this part of the nation, and particularly in this part of our State, the land is very expensive. A home that costs $400,000 to build will sell for $1,000,000 in a prime location. What should that home be insured for? The answer is $400,000, but many new homebuyers simply get a policy for their purchase price or their mortgage amount. This can mean tens of thousands of the homeowner’s dollars over the years needlessly spent on insurance that they can never use because a claim would be satisfied and closed once the home is rebuilt at a cost of $400,000. Just remember that the land and the structure are in the purchase price, but only the structure need be insured.

Is There an Underground Oil Tank?

Most Homeowners insurance policies do not cover liability caused by a leaking oil tank. Yet the costs to clean up the environmental damage caused by an oil leak can be very expensive. Known underground oil tanks should be inspected prior to any real estate purchase, and home buyers with a tank on their property should consider an oil tank liability policy. If it is not clear whether a home has an underground tank, a remediation and inspection company can do a “Tank Sweep” to detect and inspect any tanks that may be found.

What About Appliances and Things Like Heating and Central Air?

Appliances are not covered by Homeowners insurance, and built-in systems like heating and central air conditioning are only covered if the damage is “sudden and accidental.” In other words, normal “wear and tear” is not covered by insurance. However, there are some home buyers that would prefer the extra peace of mind knowing that they won’t be hit with an unexpected expense should something break down. These buyers may want to know about home warranty plans available from some insurance agents.

And What About the Water Line?

Homeowners often ask if the water line running under their property is covered by homeowners insurance. Just like to topic above, “sudden and accidental” damage is covered, but normal “wear and tear” is not. So if a tree falls and a branch pierces the water line, a good insurance policy should cover the repair costs. But if the pipe springs a leak because it’s old and rusted, that won’t be covered.

Backup of Sewers and Drains

Water backup and the damage it can cause is a separate coverage on most homeowners policies that homeowners need to know about.

Named Peril vs All Peril

All insurance policies are not created equally. Some policies only cover a certain list of risks. These are known as “Named Peril” policies. Other policies cover every risk that is not specifically excluded in the policy. These are known as “All Peril” policies. Homeowners need to know which type they have. Before they have a claim.

Actual Cash Value vs Replacement Cost

This usually comes up when personal property, like clothing, furniture, or electronics, is damaged or stolen. Some policies will only cover personal property for the depreciated value, not what it would cost to replace the item new at today's prices. This can make a difference of many thousands of dollars at claim time.

What’s the Best Advice to Give a Home Buyer?

The best insurance advice to give a home buyer is to advise them to speak with a trusted and knowledgeable insurance professional.

Here are Some Key Things to look Out for:

Vacant Homes

Flood Zones

Reconstruction Cost vs Market Value

Underground Oil Tanks

Appliances and Things Like Heating and Central Air

Water Lines

Backup of Sewers and Drains

Named Peril vs All Peril

Actual Cash Value vs Replacement Cost

Offering tips and advice on risk management for individuals, families, and business owners. Brought to you by Henry Robinson, Farmers Insurance and David Robinson, Farmers Insurance.

About the authors: David Robinson has 28 years of experience in the insurance industry. He owns The David Robinson Farmers Insurance agency in Summit, NJ (www.farmersagent.com/drobinson1). Henry Robinson is a second-generation insurance professional. He owns The Henry Robinson Farmers Insurance Agency in Livingston, NJ (www.farmersagent.com/hrobinson1).

The opinions expressed herein are the writer's alone, and do not reflect the opinions of TAPinto.net or anyone who works for TAPinto.net. TAPinto.net is not responsible for the accuracy of any of the information supplied by the writer.

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