Is Your Home Uninsurable? The Warning Signs Buyers Should Check Before Making an Offer

Home insurance is an essential expense when it comes to protecting your home and your finances. 

While it’s not always required, without it, you may have to come up with thousands (or even tens of thousands) of dollars out of pocket. If a fire damages your property, someone slips in your driveway, or your belongings get stolen after a break-in, these would all be cost burdens you'll have to bear without insurance.

That's why understanding the signs of an insurable property is crucial for buyers looking to make a move this year.

Failure to do so may leave you with a home that becomes a major money pit.

Red flags to look for

Once you find a home you love, pay close attention to these signs that can make it difficult to insure it.

Knob-and-tube electrical systems

Homes with knob-and-tube electrical systems from the pre-1970 era are essentially uninsurable.

“I worked with a buyer in Milwaukee who fell in love with a Victorian, only to learn that she couldn’t get coverage for it due to the severe fire risk posed by the original wiring,” says Sain Rhodes with Clever Offers in Seattle.

Foundation issues

Horizontal cracks and uneven floors indicate movement within the foundation and structure of the property. According to Rhodes, such risks lead insurers to quote much higher premiums or even deny coverage altogether.

“I assisted a family who, after purchasing a $385,000 home, learned the property had foundation issues, resulting in a $480 annual premium increase, which is approximately $14,400 over a 30-year mortgage,” explains Rhodes.

Roof issues

Any roof that’s more than 20 years old is a red flag for almost every insurance company.

“I had auction buyers win a competitive offer, only for the insurance to fall through due to the roof being 22 years old,” says Rhodes. 

Insurance companies require that an old roof be replaced before they will issue your policy. This means you will have to find an additional $12,000 to $28,000, or renegotiate the entire transaction.

Missing or deteriorated asphalt shingles are also problematic as they often result in moisture issues.

“Roofs are photographed for underwriting purposes, and one of my clients lost their offer because inspection and sale photos showed 30% to 40% of the shingles were missing from the roof,” adds Rhodes.

Potential flood and fire liability 

The Federal Emergency Management Agency assigns every property to a risk category, and those in flood zones A and AE are subject to distinct requirements under the National Flood Insurance Program. 

“This happened with one buyer who was happy with a listing until we calculated the expected flood insurance cost: about $2,400 annually or $200 per month. This made the property far less financially viable,” explains Rhodes.

Also, keep in mind that certain parts of California, Colorado, Oregon, and Washington have become “insurance deserts” in wildfire-risk zones. Homes in areas with dense forest, particularly with uncleared vegetation, have made homeowners insurance impossible to get. 

In fact, some insurance companies have stopped issuing policies in select states because wildfire-related claims have made them bankrupt. 

How to do a preliminary check before making an offer

Before you commit to a home, do your due diligence to ensure you can obtain insurance coverage at a price you can afford. After all, it’s better to be safe than sorry. 

Here are several expert suggestions:

Contact an insurance agent

Reach out to insurance agents who specialize in your area and ask them, “Is this property insurable and what is the cost of coverage?”

“For $30 to $50, they can provide a CLUE report, which provides a property's complete insurance claim history (water damage, fire, theft, prior insurance claims, etc.),” says Rhodes.

Check the FEMA website

The FEMA site can help you assess your target property's flood zone designation. If a home’s flood zone designation is A, AE, etc., or is any other high-risk flood zone, you may need mandatory flood insurance. Note that county assessor websites often include historical flood-damage records and other damage records, which may reveal patterns and insurance risk.

Opt for an inspection 

If the home you’re interested in was built before 1970 or has a roof older than 18 years, hire a licensed electrician and roofer to inspect the house.

“Inspections that reveal hazards such as knob-and-tube wire, roof deterioration, and other such structural issues that are likely to kill insurability typically cost $200 to $400,” explains Rhodes.

Talk to neighbors

Talk to the neighbors about their firsthand experiences with insurance. Ask if insurance has become more costly or more difficult to obtain in this region.

“People are usually honest and will quickly tell you about their insurance cancellations or about increases in their insurance premiums,” says Rhodes.

Risks of buying an uninsurable home

While it might be tempting to just assume a house is insurable and move forward with an offer, doing so can cost you. In the event you’re unable to lock in insurance coverage for the property, you may face these ramifications:

Lender-placed insurance

Your mortgage will likely have provisions requiring homeowners insurance. Rhodes explains that if you don’t obtain a policy, you may be forced into lender-placed insurance at $4,000 to $12,000 a year. In comparison, home insurance typically costs between $1,200 and $1,800 or a bit more a year. 

Costly out-of-pocket expenses

Having an uninsurable home also means that you’ll personally be responsible for any damages, injuries, or accidents that happen on your property.

“Without insurance, you could be facing well over $100,000 in debt due to your liability,” explains Rhodes.

Selling challenges

Selling a home that is clearly uninsurable is nearly impossible. Your only option may be to look for cash buyers.

“You might have to sell your home for $280,000, even if it’s worth $400,000, for example,” says Rhodes.