Owning a historic home can be a great source of joy and pride, but insuring one is not as simple as just getting a quote; the process needs to be taken as seriously as any other investment strategy. So, if you're looking to purchase—or already own—a historic home, there are several important areas you should educate yourself on to ensure your home and assets are properly protected in the event of a property loss.
Historic homes are classified into two categories—those built pre-1945 and those built pre-1900. Because of the unique finishes, features, and architecture from these periods, replacing or restoring these homes after a property loss can cost a considerable amount more than using today's methods and materials. In general, it's said that replacement cost should be 25% more for homes built between 1900 and 1945 and nearly 50% more for homes built pre-1900 when compared to homes built today.
Replacement Cost Value (RCV)
The RCV of pre-1945 homes can be significantly greater than that of homes built today. Items that greatly affect a home's RCV: original construction replication; special finishes and materials; ordinance, law and code upgrades; architect, engineer, and other specialist fees; time issues; licensing and permit costs; foundation costs; lead paint removal costs.
Most homeowners policies offer a replacement cost method, which means if your home is damaged or destroyed, the insurance company will pay to restore it to its previous state prior to the loss. For pre-1945 homes, many insurance companies want to place a "functional replacement cost" (FRC) method on the policy. This means they will replace your home using today's methods, affecting the historic integrity—and value—of your home.
Guaranteed or Unlimited Replacement Cost
While all insurance policies have a claim settlement method, ultra-preferred companies will go to great lengths and expense to make sure a home is restored to its pre-loss condition—ensuring the same materials, same workmanship, and same design—regardless of the limit on the policy. They also provide unlimited coverage for additional costs resulting from changes in updated building codes or ordinances.
Historic Preservation List
If your home is on the historic preservation list then the village will require you to maintain much, if not all, of the original construction materials. Your insurance policy, however, might not read the same way—which can leave you with significant out-of-pocket expenses come claim time. This goes hand in hand with the claims settlement method and RCV of your historic home. Many insurance companies will simply not insure homes if they are registered on any type of historic preservation list. Ultra-preferred companies will.
Updates and Expanded Coverage
Companies that insure historic homes understand the uniqueness of them, as well as the frequent updates required to maintain their integrity. They will require a four-point inspection that focuses on the roof, HVAC system, wiring, and plumbing to ensure these items are in good working condition—with update years and condition playing a major role in which companies are willing to write insurance on a particular historic home.
Finally, ultra-preferred companies provide expanded coverage on items that standard companies limit. Coverages like water back-up and mold are excluded or severely limited in a standard policy. Ultra-preferred companies include expanded coverage for these problematic losses.
When building an insurance policy to protect your historic home and assets, you should work with an agency that specializes in insuring historic homes. Simply shopping for the cheapest quote could cost you tens to hundreds of thousands in out-of-pocket expenses and many headaches post-claim. Make sure your homeowners insurance policy is written properly and provides the coverages you need to bring you back to a pre-loss state, and to help preserve your asset.
Contact Forest Agency to learn more about the best coverage for your historic home, auto, life, and business.
Dan Browne is the President of Forest Agency Insurance, an independent insurance agency proudly insuring historic homes in Oak Park and the surrounding communities since 1957.
Answer Book 2019
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