Many new Buyers might be tempted to under-estimate the value and complexity of acquiring property insurance. It sounds simple – just call up an insurance company of your choice, take out a policy, and start paying premiums – right? Wrong. When buying new or maintaining an existing property, regardless if it is a house, condo, half-duplex, acreage property, commercial property, etc., insurance is important, can be a complex process, can be costly, adequate coverage is by no means a guarantee, and therefore obtaining an appropriate insurance policy should not be underestimated. The level of insurance and cost of coverage varies based upon the type of property, various property factors and risks, what levels of coverage options are offered by the insurer, and finally the level of risk a property owner is comfortable accepting.
Below are my ‘top ten’ groups of insurance concerns and risks that should be addressed when new home Buyers or existing property owners are looking to take out a new insurance policy:
(1). Is the current level of electrical service acceptable and does aluminum wiring or knob and tube wiring exist that requires upgrading? An increasing number of insurance companies are refusing to insure properties with 60 Amps or less electrical service without a written commitment from a homeowner to perform an immediate upgrade. A service upgrade can also mean a panel upgrade; wiring upgrade; insertion of ground wiring; and / or switch, outlet, conductors, or fixtures upgrades. Such an upgrade can be expensive and usually ranges up to several thousand dollars. Knob-and-tube wiring was used in the early 1900s, and problems occur with an improper number of outlets and circuits, and improperly installed fuses that are too large for the circuit – these situations can cause circuit overheating, deterioration, and overloading. Aluminum wiring is predominantly found in houses built or upgraded in the late 1960s up to the mid-1970s (i.e. when aluminum wiring was most popular) but in rare cases can also be found in other homes. In some cases the risks of aluminum wiring may be resolved with either a complete rewiring or using a lower-cost technique called ‘pig-tailing’ of switches and outlets – for any given situation a property owner would need to consult a certified electrician or certified property inspector to verify whether or not such a technique would be acceptable given the current electrical codes and after careful inspection and analysis of current property issues. Any wiring or other upgrade can also mean a panel upgrade; service upgrade; insertion of ground wiring; and / or switch, outlet, conductors, or fixtures upgrades to meet the current Alberta Building Code.
(2). Is there an existence of asbestos or vermiculite (a.k.a. Zonolite) insulation that requires removal? Health Canada has issued bans against any new construction using these materials and has also issued warnings for those homes that contain these materials. Health Canada also claims that ‘there is currently no risk to human health if this insulation is sealed behind wallboards and floorboards, isolated in an attic, or otherwise kept from exposure to the interior environment.’ b If an owner is aware of the existence of these types of materials in their attic, they are advised to take the following preventative measures (paraphrased): ‘(1). Do not allow children to play in the attic and make sure anyone working in the attic is aware of the possible presence of these materials; (2). Do not use the attic for storage, if retrieving the items from storage may disturb the insulation; and (3). If walking into the attic is required, walk on boards to minimize disturbance and use a certified and appropriate respirator mask.’ b If an owner expects to be using the attic regularly, they should consider the merits of hiring a certified insulation contractor (asbestos specialist) to remove the existing insulation before reinstalling a proper R-value level of new material insulation that satisfies the current Alberta Building Code.
(3). Is there an excessive level of Radon or other dangerous gas that requires removal? Radon gas dangers are predominantly linked to areas near industrial uranium facilities such as the B.C. Interior; Winnipeg, MB; Nova Scotia; Port Hope, Ontario; and Northern Saskatchewan (i.e. not the Greater Edmonton Area). It is important to note that Radon gas is radioactive; at high levels can increase health risks; and can widely vary from house to house and municipality to municipality. ‘It can never be assumed that any given house will have high radon levels, or that it will have low radon levels.’ c Health Canada issues recommended guidelines of acceptable Radon gas standards that vary from 100 Becquerels (Bq) per cubic metre (newly built homes) to 200 Bq per cubic metre (for most homes that are not newly built). Depending upon the level of Radon gas risk within a specific jurisdiction, certified home inspectors may or may not test for Radon using a number of various accepted radon testing devices. Some suggested methods for guarding against high Radon levels include the following: removal or renovation of earth floors or soil-exposed property areas; repairs to cracks in foundations, walls, ceilings, and around drains, sump pumps, and pipes; and well-ventilating basements including sub-floors. Excessive levels of other dangerous gases (e.g. methane, carbon monoxide, hydrogen sulfide, etc.) should be inspected and remedied by a certified specialist.
(4). Is the property located on a slippery slope (e.g. steep bank on the outside of a river curve) or flood plain (i.e. flat section on the inside of a river curve)? Properties located on a flood plain may not be insured against flooding so it is important to explore the possibility of having this added to your coverage for an additional premium rate if you own a property in these areas. The Greater Edmonton areas located on a flood plain that could be susceptible to severe one in fifty year or one in one hundred year floods include but are not limited to: Cloverdale, Rossdale, Riverdale, and Strathcona-Skunk Hollow. Other types of minor flooding and evidence of water seepage due to negative grading, foundation cracks, sewer backup, etc. are also usually of interest for insurance companies. For homes located on a slippery bank of an outside river curve, there is a danger the ground could give away in the next few decades causing structures to collapse. If you are buying on the steep bank on the outside of a river curve or any other steep slope, it is a good idea to get a comprehensive geotechnical engineer’s investigation coupled with the inspection by a certified property inspector. This would help you determine how much your property will be at risk of slippage and other soil issues affecting your property.
(5). Is there any aging or otherwise damaged or leaking oil tanks on the property? Oil spills and seepage can result from rust and corrosion and an oil spill can leak into and contaminate the groundwater supply. Oil tanks should always be inspected and in cases where an oil tank is known to be on a property you want to buy, ask your REALTOR® whether or not an environmental assessment report is available or ask your mortgage broker whether an assessment may need to be conducted in order to obtain financing and insurance in the cases of commercial or acreage properties. Oil tank types: indoor, outdoor, and underground, all which have varying issues for inspection, maintenance, and insurance coverage.
(6). Are the shingles and other roof components over 25 years old or is there the existence of pine shakes that have not been pressure treated? Your insurance company will ask questions about the roofing, and the better condition, quality, material, and age of your roof the better chance of acceptance for good coverage at a lower premium. Contact a certified roofing company to perform any required roofing repairs.
(7). Are there any wood-burning appliances or is there a gas furnace more than 20 years old? When you are attempting to take out an insurance policy for a property with a wood-burning fireplace, your insurance company will likely be concerned with some or all of the following (but not limited to) factors: (a). Certification(s) from ULC (Underwriters’ Laboratories of Canada) and CSA (Canadian Standard Association); (b). The qualifications and certifications of the individuals or companies that performed the installation; (c). What are the clearances, and do they satisfy the current Alberta Building Code?; and (d). How well is the system ventilated? If you are buying a home with a wood-burning appliance and you are concerned about getting insurance to continue using the appliance upon move-in, ask your REALTOR® and certified home inspector (prior to conditions removal) to find out answers to the above questions and any other questions by your insurance company. For homes with gas furnaces more than 20 years old, it is important to make sure the system has been properly inspected; there are no cracked heat exchangers; no carbon monoxide leaks; no fire hazards; proper combustion air intake is installed; and / or any other insurance requirements are satisfied.
(8). How will coverage be compromised in cases where the home is left vacant for an extended period of time? If you are selling and moving into a new home, there will be a period of time where the home will be vacant after you move out. It is important to notify your insurance company in writing of this vacancy, and make sure someone is checking in on the house in compliance with your insurance company’s requirements. It is also a good idea to leave coverage on a few days after turnover in the event the Buyer’s money is late arriving. A property remains in the hands of the Seller until such time as the Buyer’s money arrives and the property is officially turned over so if the event of a sudden fire, etc. during this time it is still the Seller’s responsibility to have insurance and to ensure any new damage is repaired.
(9). Are you aware of the ‘uninsurable perils’ with your policy and additional ‘named perils’ available for extra coverage? Uninsurable perils include events that are deemed ‘preventable’ are usually not included in basic coverage – such events can include but are not limited to water damage from flooding on flood plains or winter pipes freezing. To help avoid pipes from freezing, it is important to ensure the furnace pilot light is on at all times, and have someone check on your furnace and plumbing while you are away for extended lengths of time. ‘Named perils policies are designed to cover accidental damages to the house. Policies can be bought for fire, explosion, water damage, theft, hail, and electrical current. Additional coverage can be bought for perils not normally covered in a home insurance policy, including sewer back up and furnace oil spills.’ a Note that mold is also typically not included in basic insurance coverage and it is important to undertake a professional property inspection to determine if mold currently exists and also ask your insurance company on options for extra coverage in the event mould appears in the future.
(10). How much will the policy cost, what is the deductible, and what all is covered? Typically the higher the insurance premium cost, the lower the deductible (i.e. the minimum initial amount that must be paid out of the total losses by the claimant in the event of a claim), and the more risks that are covered. Owners must weigh the likelihood and impact cost of each occurrence to decide if the additional coverage is worth the extra premium increment. Policies can be upgraded or downgraded (prior to an unexpected event occurrence) in accordance with the policies and guidelines of the particular insurance company you are dealing with. Property insurance typically does not cover contents, personal or commercial liability, etc. and separate policies must be taken out to cover these risks. Plus, every policy usually has dollar amount coverage limits (e.g. for bylaw endorsement, personal property, subrogation, guaranteed replacement cost endorsement, title insurance, etc.) and rules for when coverage may suddenly be stopped (e.g. cases where insurance premium payments are stopped or rare cases where a home is rented out to a tenant who uses the home for an illegal purpose). New home Buyers without previous insurance coverage history may be forced to pay higher premiums initially depending upon the type of property and policy they are taking out. Property owners are encouraged to read their policy and to ask questions to their insurance agent as to what is included, what is the deductible, how much it will cost, and the insurer’s differences between comprehensive coverage, named perils, and broad policy.
In summary, the above ten groups of insurance risks are important for Buyers to address with their REALTOR®, insurance agent, and property inspector during or prior to a property inspection. Buyers are advised to hire a reputable and certified property inspector to make sure the above questions have been satisfactorily answered (if required, contact your REALTOR® to provide you a list of property inspection companies that are reputable, certified, and have demonstrated a high level of industry knowledge and experience). Warning to Buyers: take caution to not rely partially or exclusively on ‘statements’ made verbally or in writing by a Seller – it is ‘Buyer Beware’ and it is important to take reasonable steps to ascertain the validity of any statements made by a Seller since there is always the good possibility of accidental or intentional false or misleading statements. Buyers are not advised to perform an inspection themselves unless they are comfortable with their level of knowledge and experience and understand and accept the risks of missing something that may have otherwise been caught by a reputable and certified home inspector. While obtaining property insurance is usually a pre-condition of financing acceptance, upon a pending offer Buyers are advised to contact one or more insurance companies to ensure a suitable policy is in place and that the estimated costs of repairs or upgrading as well as the insurance coverage premium rates are known before removing their financing and / or inspection conditions. Upon moving in, Buyers are encouraged to consider the merits of forthwith performing any repairs and upgrades advised by their inspector and / or insurance company. With adequate insurance protection Buyers can then relax and enjoy the pride of ownership.
[Article written and ©2009 by Kelly Grant, M.Eng., ABR, NCSO, P.Eng. - REALTOR® at Maxwell Devonshire Realty in Edmonton, AB]
Disclaimer: for those readers not currently represented by another licensed REALTOR®, to obtain more information on this topic and / or if you are serious about selling or buying in the Greater Edmonton Area, call Kelly at 780-414-6100 (pager) or send Kelly an email to SOLD@KellyGrant.ca to schedule a confidential appointment.
[References: Canadian Real Estate Association (CREA) publications: (a). What REALTORS® Should Know about Property Insurance ©2005; (b). Vermiculite Insulation and Asbestos ©2005; (c). Radon Exposure and Canadian Homes ©2007].