Updated Insurance for renovated property

[Roger Flot]

I was reviewing some renovated listings in my area and one indicated that even though the house was originally built in 1920, because of all the renovations bringing the house to current code, that you could get 2024 rates on insurance.  I imagined that to mean that a 1920 home with no renovations would cost more to insure than one updated to 2024 specifications.

Is this something that is just "known" to flippers/renovators and I am just coming across it?

Does anyone know how insurance companies evaluate these properties and whether or not real value can be realized for insurance for renovation?  Are there any guidelines or best practices (ie: rewiring such a property would be more valuable than updating insulation).

Is it something you need to ask the insurance company about to get, or is all this determined in the initial interview with the potential insurer?

[Owen Rosen]

Quote from @Roger Flot:

Quote from @Owen Rosen:

Quote from @Becca F.:

Great question. I'm going to ask my insurance company. I'd be interested to hear how about this maximum appraisal potential is determined. 

I would guess an older home might be more cost to insure? I also did a local renovation in 2022 bringing it up code. I was told by a local experienced investor that insurance companies will always go cheap with paying out to contractors in the event a property needs to be rebuilt. 

If you're insuring a home to replacement cost, insurance companies don't care about appraisals or what the home is worth.  They care about what they estimate it would cost to rebuild the home.
All else being equal, yes, older homes are more expensive to insure than newer homes for a variety of reasons.

 I guess from an "all things being equal" framework, what are the variety of reasons that an older home are more expensive to insure than newer homes?

 1. The older the home the more difficult (and therefore expensive) it's likely to be to restore a home to pre-loss condition

2. Older homes will typically have systems that are out of date - even if only partially.  For instance, plumbing might be updated but not every pipe.  In MANY cases, an insurance company is insuring a home under the guise of it having updated features without knowing that some things are not fully updated.  In many of those cases the lack of updates would not even be insurable if the insurance company was aware of it.

3. So, older homes have a higher frequency of claims as well as higher severity.