Read the episode transcript
Aaron Bollinger (00:00)
Welcome back to Speaking of Insurance, brought to you by Bollinger Insurance Services. I'm Aaron Bollinger, and today we're talking about something that's becoming an increasingly important part of buying a home in California, and that's homeowners insurance. Now I know what you're thinking. Obviously, if you're buying a home, you're going to need insurance. But a lot of the but what a lot of people don't realize is that insurance can affect whether you're actually able to close on that home in the first place.
Aaron Bollinger (00:22)
You've been looking for a house for six months. You finally find the one that you love. Great neighborhood. Price works for your budget. And you make an offer. The seller accepts and you open escrow. Congratulations. Everything seems to be moving along smoothly. And then your lender asks you to provide proof of homeowner's insurance. You start calling insurance companies, and it's kind of like pick your poison because odds are there's gonna be insurance companies that are gonna decline writing you in the first place, whether that's because of a moratorium or wildfire exposure or property mappings.
Aaron Bollinger (00:51)
Second could be saying that the roof is too old. Third could be saying maybe it has a claims history on the property. Maybe you had filed a prior claim on a different property and that's impacted your eligibility for this company. And then maybe the fourth one finally comes along and they say, hey, we'll write the insurance, but it'll just be a lot more expensive than you wanted it to be. You're scrambling to figure out how to insure that home before your closing date. And now here's the bigger issue is that you might have qualified for the mortgage based on an estimated insurance cost.
Aaron Bollinger (01:21)
That turns out to be nowhere near what the property actually costs to insure. That's what we're going to be talking about today. How California's insurance market is affecting home buyers, why certain properties are harder to insure, and what buyers should do before they're too far into escrow, like a checklist. Because finding a home you can afford and finding a home that you can afford to insure are two separate questions that are beginning to get pinned against one another, especially in California.
Aaron Bollinger (01:50)
As an insurance broker in California, I have actively helped personally dozens of people over the last couple of months, new home buyers, get into the insurance market, understand the homeowners market, and get options. And so today I'm going be talking about a few of these examples, a few circumstances that can arise that I've seen arise that are people on our agency have seen arise as well. So insurance is a part of your mortgage payment. Let's start with something simple.
Aaron Bollinger (02:18)
When most people shop for a home, they focus on the purchase price and then the interest rate. They calculate the down payment, the monthly mortgage, And they try and figure out whether they can comfortably afford the property. But homeowner's insurance is another important part of that calculation that a lot of people leave out. If you have a mortgage, your lender will generally require you to maintain adequate property insurance, just like anybody who loans you money, they're going to want.
Aaron Bollinger (02:41)
some level of promise or protection for what they are lending you the money to go buy. And so if your lender collects insurance through an escrow account, for example, that premium becomes a part of your monthly housing payment. So if you're buying a house for $1.2 million and you expect homeowner's insurance to cost $2,400 a year, that's $200 a month, but actually action but after actually getting those quotes, it turns out to be $7,000 a year. That's $600 per month.
Aaron Bollinger (03:08)
And so you're increasing your monthly housing cost by $400. That's four to five thousand dollars more a year. After five years, that's like twenty to twenty-five thousand dollars if that premium stays constant. And we've seen recently that a lot of these insurance companies are starting to raise the rates, filing for the rate increases. And so that that's a part of the insurance premiums that change over time. So of course I'm not just gonna like actively predict that, you know, your prices are gonna stay the same or go down.
Aaron Bollinger (03:37)
But generally speaking, it is a consistent payment that you will have to make. And so this example is just me trying to illustrate why insurance deserves attention early in the buying process, not later. If you're already stretching your budget to purchase a home, a major difference in insurance costs can matter substantially. And depending on your financial circumstances and lender requirements, it could affect your mortgage qualification as well. So that's the first takeaway.
Aaron Bollinger (04:04)
Don't treat homeowner's insurance as something you figure out on the day before closing, week before closing. It should be a part of your home buying budget from the beginning. And so obviously, we feel like in California they're getting singled out. And it it can be considered the case statistically, some of the home insurance statistics and property insurance statistics are ridiculous. But let's talk about why a home here might be more difficult to insure. Because obviously there's wildfire risk.
Aaron Bollinger (04:32)
And obviously it's understandable given the wildfires, all of the different level of ways that these insurance companies are looking to mitigate their wildfire exposure. But it's not just that. There's also age and condition of the roof and property. A lot of people are starting to buy these more vintage homes. A lot of people are starting to try and renovate some of these older properties. And so the construction materials, the age of the major systems.
Aaron Bollinger (05:00)
The previous insurance claims on that property, the replacement cost, the location, other underwriting characteristics. Comparing two homes that are very similar, let's say both are listed for $1.5 million, same size, only a few miles apart. One is in a relatively low risk area and newer construction. Other one is near a hillside with significant wildfire exposure and an older roof. Two completely different things.
Aaron Bollinger (05:28)
Even though the homes have a similar purchase price, their insurance options will be completely different for that home buyer. So it really depends what you're looking for. If you're willing to pay the extra premium, extra risk as well of owning an older property, you like the charm, definitely keep that in consideration during that buying process. Where are we mapped at? How high is the wildfire risk? What features of this property, the systems need to be updated potentially to be eligible for good insurance. And so
Aaron Bollinger (05:56)
Obviously, you need to understand this. and the fact that a property's market value doesn't determine how easy it will be to insure either. The insurer is evaluating the risk of covering that specific property. Two homes that look similar on Zillow will in 99% of cases have two completely different insurance characteristics and cases to go through with an insurance broker. So what happens when you cannot find insurance?
Aaron Bollinger (06:23)
You're under contract to buy a home. Maybe it's in Lake Arrowhead. We've had a few people in similar areas. And you've contacted State Farm, AAA, all the other insurance companies, and none of them are willing to offer you a standard homeowners policy. What happens? So congratulations. You are now eligible for California's fair plan. So we've discussed the fair plan on this podcast. So I'm not just going to repeat the entire concept. The important
Aaron Bollinger (06:50)
Point for home buyers is that the fair plan is an insurer of last resort. You can go to Bollinsure website and type in California Fair Plan, Bollinsure, and it will show you all the statistics. And it's used for eligible properties that cannot obtain coverage to the traditional market. More limited coverage than a comprehensive homeowner's policy or a homeowner's policy in general. So depending on the situation.
Aaron Bollinger (07:18)
you will most definitely be recommended in in many cases by insurance brokers and companies required to get a difference in conditions coverage policy. And so this is where things get complicated. You need to make sure that the insurance arrangement satisfies your lender's requirements. So the total cost of that as well. So there's like two different things. You have to satisfy your lender's requirements, which might require a specific type of valuation to be met on the property in the event of specific claims being filed.
Aaron Bollinger (07:45)
Coverage for the property and specific events again as well. And so it has to meet their requirements and then it has to meet your requirement, which is your budget. Now, if you're just ballin' and you're able to afford any insurance, then odds are there will be a specialty market out there for you. And maybe you can just get a higher deductible.
Aaron Bollinger (08:04)
And write a more wildfire prone risk property. But California Fair Plan also tends to be much more cost effective and sadly a better option for a lot of people when it comes to the budgeting of the insurance program. And so a lot of people do opt for it, whether they like it or not. So a fair plan quote does not mean that the entire homeowner's insurance is covered. If additional coverage is needed.
Aaron Bollinger (08:32)
it will be more expensive and you'll add a policy to the fare plan to cover it for the additional things.
Aaron Bollinger (08:41)
And this goes on to the next point. The fair plan isn't just for the eligibility of properties that are within a wildfire area. On the contrary, there are other different types of property risks that insurance companies in general look at and they say no to. And so it's it's a mixed bag of actually what the fair plan insures. Of course, majority it's those higher wildfire ones because everybody's trying to get off that. But things like your roof can change everything, all eligibility.
Aaron Bollinger (09:10)
You find a beautiful home, beautiful kitchen, new flooring, amazing backyard. But the roof is like original 1950. Now it can be clay and the highest quality and have been maybe maintained adequately, and you could still be eligible for some things. But the roof is one of the most important protective systems of that property. Rain, wind, other weather-related damages, as roofs age, ensures.
Aaron Bollinger (09:38)
become more concerned about the condition and potential for future losses and buildup. So not every insurance company is gonna have those same requirements. Some may be stricter on those age limits. Some may require an additional inspection. But if you're buying a home for a million dollars and you learn that the roof is near the end of its useful life and you contact an insurance company and they say that they'll consider the property only if the roof is replaced with a specific period possibly for that, you have a financial decision.
Aaron Bollinger (10:07)
Do you negotiate with the seller? Do you budget for a replacement? Does the timing work with the lender and the closing time that you're looking for? And will the insurer actually issue coverage before the work is completed? And so instead of that being just a period where the policy is not in force, will there be coverage during that renovation as well? So these are the questions that need to be addressed before you assume that the insurance is all handled. And a roof inspection.
Aaron Bollinger (10:34)
Isn't just a maintenance issue, it can be an insurance issue too. And so please go get your roof inspected, looked at, analyzed, advised, even if it's just an insurance broker looking at the top of the property. It can be a big difference maker for understanding that risk. And again, a lot of fair plan policies are not exclusively just because of the wildfire. Oftentimes we see different characteristics of the property that require
Aaron Bollinger (11:00)
The fair plan to go onto it or make the fair plan the cheaper option that people opt for because of the lack of updates to the other major systems as well. Okay. That was a lot. So hopefully you guys got most of that in terms of the deciding of that purchase of that home. But let's talk about the actual home buying process. In a typical real estate transactions, buyers may have contractual contingencies.
Aaron Bollinger (11:29)
Related to inspections, financing, and other conditions. Now, the terms, of course, will vary, but here's my recommendation. If you're purchasing a property in California, start evaluating homeowner's insurance as soon as you have enough property information to request quotes. If you have an inspection report, that's amazing. Go send that to an independent insurance broker, especially if these captive agencies are unable to write that policy on a standalone basis. Or maybe your bundled company isn't willing to write the new home as well.
Aaron Bollinger (11:57)
Go look for an independent insurance broker that'll be able to place you with potentially a surplus lines market, potentially a standalone homeowner's market. There are admitted standalone homeowners markets in the insurance space. So that is a myth that there's no admitted standalone insurance companies riding homeowners' insurance. And so ideally, you don't have to wait until the last few days of escrow, but if you do have a really quick turnaround time,
Aaron Bollinger (12:24)
Their FAIR plan does have an escalation method that you can go through with an independent broker like Bollinsure as a absolute last resort. And so before removing relevant contingencies, make sure you understand whether insurance is available and what it's likely to cost.
Aaron Bollinger (12:40)
Course, you should review your contract and contingency deadlines with your real estate agent and attorney. But from an insurance perspective, early planning gives you more time to evaluate options as well. If you have a 30-day escrow, you start shopping for insurance on day three, you may have time to address underwriting questions as they come up. But if you wait until day 27, you have three days left, your options could be much more limited. An insurer might request photographs, the fair plan does that.
Aaron Bollinger (13:06)
They might want roof inspections done, details about previous renovations, additional underwriting reviews. If you have any experience in the California property insurance market, you can understand 100% the level of turnaround time that they are not able to offer you, sadly, anymore. It's just not that good. So let's get practical. If you're shopping for a home in California or a condo or an investment property or a townhouse.
Aaron Bollinger (13:35)
Whatever you're shopping for, what can you do to avoid insurance surprises? Identify the properties you're seriously considering. You don't necessarily need to have a complete insurance quote for every single one and or every single listing that you have hearted on Zillow. But if you're preparing to make an offer, it's worth investigating potential insurance concerns with an independent broker, hopefully somebody that you're having advise you on other things as well. Gather the basic property information. The insurance broker can do a lot of the details.
Aaron Bollinger (14:05)
other than the address, but things like the roof age potentially, other significant updates to the property that you might be able to get, a copy of the inspection report. All of these things are so very helpful. Things like square feet, things like year bill, things like roof type, those things can be inferred, those things can be determined fairly easily. But the other things are a lot harder to find permits on and records on in terms of the updates to the major systems.
Aaron Bollinger (14:32)
I would also contact this broker, whether that's Bollinsure whether that's somebody else early, explain you're considering purchasing the property and want to understand the available coverage options. Very simple email to draft. And I would also be realistic about the timing because an initial indication isn't going to be the same thing as a fully bindable quote. And they might need to review photographs, the insurance company that is, inspection details or other information that we had just mentioned as well. So understanding that. And I'll all throw this in. This is the most important one.
Aaron Bollinger (15:02)
Compare more than just the premiums. Deductibles are very sneaky. A lot of supplements as well on the water side. I I know sometimes I sound like a broken record in my own head because I I tell clients this as well. It's the same thing. Look at the dwelling coverage, the water damage restrictions, the liability protections. Make sure that there aren't any supplemental policies that are going to be required with one and not another.
Aaron Bollinger (15:26)
Maybe a CPL policy on one because one doesn't include, liability. Make sure that everything, every base is covered, or have somebody cover all the bases for you. So with that, let's talk about the bigger picture. California already has a very complicated housing market as it is. Prices are high and very volatile in a lot of areas. mortgage rates are very much so affecting the affordability.
Aaron Bollinger (15:51)
Property taxes and maintenance add to ownership costs as it already is. And insurance is another factor buyers have to consider and are starting to consider a lot more. When insurance becomes more expensive or difficult to obtain, it can change how people evaluate these properties and determine where they want to live as well. Some buyers have to decide a particular home is outside their budget, which is of course not the best experience to have to go through, but maybe you just change neighborhoods as well. And you need to give additional time to your insurance broker.
Aaron Bollinger (16:21)
Or to the person who you or the company you have advising you to get that coverage. So it can't just be a on-wim decision. I want to be careful here. It'll be an overstatement to say that insurance alone determines California home prices, and that's because real estate factors are determined by a lot of different things like interest rates, school districts, everything. But I think that it is a part that deserves a lot more recognition, is the fact that insurance pricing is generally
Aaron Bollinger (16:48)
The underwriting logic model is very similar to what you see determining home prices as well. Not that the coverage in any way, shape, or form is correlated, but especially in areas with significant wildfire exposure or limited insurance options, you see the pricing on the home be more reflective of this. You see the the volatility of some of these properties and their prices in specific areas with specific types of conditions.
Aaron Bollinger (17:16)
be more reflective of the understanding of the insurance implications. And hopefully that's more so the case. Because if you think about it, let's say that one property is a million dollars, right? And it has perfect conditions, perfect systems, everything. And you have another property that's $900,000 that would need some major renovations to some of the major structural things or possibly the electrical panels and possibly some more safety, you know, compliance related additions and improvements.
Aaron Bollinger (17:46)
To the property features. That is a more realistic thing. And it's it's not always the case. It's usually that both of those are around the same price. And then one of them gets scooped up and the other one stays on the market for the next person who likes the charm of the older house. That's the one that was $900,000, in my example. And so understanding this distinction and using this level of understanding to hopefully advise yourself against the
Aaron Bollinger (18:14)
renovating of the property that is more expensive than the one that would not need renovations unless it has that exact thing that you're looking for. But with all of this, with all of this, because of all of the recent contacts that we've had, the dozens of people who have been contacting us, advising us that they are looking to buy X, Y, and Z home, it is a excellent decision to reach out to Bollinsure Insurance Services, our family agency, or to an independent insurance broker in general, because it increases
Aaron Bollinger (18:43)
The breadth of not only your understanding, but also of the markets that are able to be shopped. But five questions I think that you, as a California home buyer, should ask. Can I actually get insurance on this property? Well, the answer is hopefully going to be yes in the majority, 99.9% of cases, but just get that in writing. How much will the complete insurance program cost? Now, of course, this is going to be pending underwriting review, but still something to understand.
Aaron Bollinger (19:12)
Number three, are there underwriting issues that could prevent coverage from being in place or the recommended coverage from being in place? That can include the roof condition and things like that that we talked about. Does the proposed insurance satisfy my lender's requirements? A big one. You do not want to discover a coverage problem right before closing. And number five, have I started the insurance process early enough? Now, if you're asking yourself that question, the answer is probably no. But, some insurance brokers are magicians, they can get it turned around.
Aaron Bollinger (19:42)
Super quick. And if you're buying a condo, I'd add a six question. What does the HOA master policy cover? And what insurance do I need individually? Because having that outside structure covered, or the maybe the interior walls based off of the HOA's master condo policy is very important to have coordinated properly and understand the coverages of your master policy because obviously you don't want to be paying for double coverage or not paying for coverage that you do need because condos and insurance do
Aaron Bollinger (20:11)
tend to be much cheaper to cover on that side, on the property side. But that's just a general rule of thumb. So here's what I would want you to take away from this episode as somebody who's looking at the California insurance market or looking at the California property market. Buying a home is one of the biggest financial decisions most people will ever make. In California, homeowner's insurance deserves that attention much earlier in the process than it currently is for a lot of people. A property can look perfect, it can fit your budget, the lender can approve your mortgage, but
Aaron Bollinger (20:40)
If you can't obtain acceptable insurance or the available coverage cost significantly more than what you had anticipated in the beginning, that can create serious complications for you, your lender, everybody in the process. So before you get too far into escrow, understand the properties, insurance situations, and specifications. Look at the roof, ask about the prior losses, get an understanding of
Aaron Bollinger (21:06)
Current insurance program as well, because if it's some grandfathered AAA policy or a captive agency policy, do not expect the same pricing on your insurance quotes that you're going to be receiving. protecting that home and understanding the full cost of owning it is just as important as anything, I would argue. So if you're buying a home in California and want help evaluating homeowners' insurance options, you can reach out to us at Bollinsure Insurance Services.
Aaron Bollinger (21:31)
We work with home buyers, homeowners, real estate professionals to help evaluate coverage and explore available insurance options for all different types of people. You can visit bollinsure.com, to request a quote or a coverage review. Thanks for listening to another episode of Speaking of Insurance with me, Aaron Bollinsure. I'll see you all in the next one. If you're looking for a home, good luck. Hopefully you find an awesome home and the insurance, hopefully it won't be a hassle.
