Is it more expensive to insure an older home?

Q:

Is it more expensive to insure an older home?

A:

The quick answer to this question is yes. In most cases, it is more expensive to insure an older home than a newer one. To explain why, we have to look at how insurance companies come up with the premiums they charge.

A general principle is that insurance companies will set premiums based on their calculation of how much risk they're taking on by issuing the policy, taking frequency of claims or severity of claims into account. While not all older homes are deemed riskier than newer ones, they are more likely to contain things that increase the level of risk for the insurance company.

For example, the primary concern for home insurance companies is fire. In order to assess this, they will ask about the construction of the building, as well as some “common hazards.”

Insurance companies will generally categorize buildings according to five types. From safest to riskiest, here are the five:

  • Fire Resistive
  • Non-Combustible (the structural members are made of non-combustible materials)
  • Heavy Timber (the structural members are made from heavy wood)
  • Ordinary (only the load-bearing walls are non-combustible)
  • Frame (even the supporting walls are made of wood)

As far as the “common hazards” go, they will ask about the type of heating and the fuel used to heat the home. They will also want to know what types of metal are used in the electrical wiring, as well as your breaker system (aluminum and knob-and-tube wiring are seen as fire risks).

If the building is over 25 years old, the insurance company will likely check on your roof, wiring, breakers, plumbing, and heating systems to make sure everything is done to modern standards.

In summary, while having an older home doesn’t automatically mean you will be charged a higher premium, it does increase the likelihood that your building contains some of these negative factors that might cause an increase in your premiums (learn more about How Insurance Companies Calculate Your Home Insurance Premiums).

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Written by Jacques Wong
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Jacques grew up around the insurance industry and began actively participating in 2013. Since then, he has gotten a Level 2 license, won an Insurance Council of BC award in 2015 for academic excellence in the insurance licensing courses and educates insurance professionals through PNC Learning.   Full Bio