Insurance Inspection
In the wake of the mortgage and financial crises, homeowner's insurance companies are ordering home insurance inspections to re-assess the properties they underwrite due to the fact that the companies are paying out millions of dollars each year in unnecessary costs, many of these claims are later found to be fraudulent.

These inspections evaluate the risk exposures and estimate the replacement cost of the homes. What you don't know about a home insurance inspection can cost you a lot of money in the form of a cancelled policy and/or increased premium.


What is a home insurance inspection?

A home insurance inspection is an inspection of a residential property ordered by the insurance company underwriting the homeowner's policy. (Note: Buildings with five or more units are considered commercial and therefore NOT residential property.)

A home insurance inspector will typically observe the condition of the home and any risks on the property or in the neighborhood. Additionally, the insurance inspector may measure the house, draw a diagram, and collect other physical data that will be used to calculate the replacement cost of the home.

If the insurance company orders an exterior inspection, the inspector likely will not need an appointment to inspect, but if an interior inspection is ordered (often for high value or multi-family homes) the inspector will contact the homeowner to schedule an interior appointment.

Who orders a home insurance inspection?

The insurance company underwriting the homeowner's policy orders a home insurance inspection from either the insurance agent or a third party inspection service. If the insurance company chooses a third party insurance inspection service, either the insurance company or the inspection service will notify the local insurance agent and the policy holder (homeowner) of the requested inspection.

Some people mistakenly believe the insurance agent who sold the policy orders the home insurance inspection. This is not so, though sometimes an insurance company will allow the insurance agent to perform the inspection and will not insist on a third party inspection service.

When is a home insurance inspection ordered?

An insurance company typically orders an insurance inspection in three situations: 1. When the policy is first written, often when the home is purchased. 2. Periodically through the life of the policy when they choose to review and re-assess the risks they underwrite. 3. When an insurance inspection reveals a risk, the homeowner is then allowed to correct the defect, or missing item (eg: a missing handrail). The insurance company will order a re-inspection to confirm the risk was corrected.

How does a replacement cost differ from the assessed value or purchase price of the home?

The replacement cost is an estimate of what it would cost to replace the structure of the home, the materials and construction expenses following a total loss like a fire. This does not include the value of the land, so usually the replacement cost is less than the assessed value of the home and less than a recent sale price of the property. Occasionally, as some homeowners find when a real estate bubble bursts, the replacement cost will come in higher than the recent selling price of the home because cash strapped developers are stuck unloading property for less than they paid to build it.

The estimated replacement cost affects the premium you pay on your homeowner's insurance. If the inspection overvalues your home you will pay too much, but if the inspection undervalues your home you may not have adequate coverage in the event of a claim.

Why is a home insurance inspection important?

A home insurance inspection can affect what you pay for your home insurance, and in some cases force you off your current policy and into the far more expensive re-insurance market. Homeowners are often surprised to learn their policies have been canceled due to deferred maintenance seen on the exterior of the home or clutter and debris seen in the yard. Remember, your insurance company may order an inspection at any time, and you should stay on top of maintenance issues. The day you receive notice of an upcoming inspection is not the day you want to start calling around for an estimate on major repairs without which your insurance company will cancel your policy.

Additionally, there are risks that do not cause your policy to be canceled, but which can increase your premium or force a rider to your policy. For example, some insurance companies won't carry a policy on a home with a trampoline; others will, but at a higher premium. If no one in your family uses the old trampoline in your yard anymore, you may be able to save your policy, or save money on your premium, by removing the trampoline before a home insurance inspection.

When you are notified your insurance company has ordered a home insurance inspection you should understand this is likely a standard review. It is wise to clean up the yard and make any necessary repairs. Always keep the possibility of an inspection in the back of your mind so you will be motivated to maintain the exterior of your home and think twice about adding risk exposures (like a vicious dog or a swimming pool) to your property.




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