The Challenges of Fire Insurance

Needing fire insurance is generally something most borrowers understand.

If their property (home) was lost to a fire, they will undoubtedly want to be covered.

It’s also a condition of most mortgages.

This makes sense because the lender’s security is made up of both the land and the buildings.  So, if there is a fire and the buildings are lost, the lender will lose some of their security.

Despite the inherent need for fire insurance, challenges may still present themselves.

These instances aren’t the norm, however both borrowers and brokers should be aware that challenges may arise when acquiring fire insurance.  And despite best efforts, it may not be as simple as one would hope.

For instance, in the summer wildfire season, many insurers will not underwrite any new policies if the properties are within a certain distance of the wildfire area.  For this, unfortunately, there is little that can be done.  Although, simply making your borrower aware is often more helpful than not.  The files will generally have to wait to close until the insurers are once again comfortable issuing new policies.

Insufficient insurance can be another issue.  The lender may require replacement cost insurance to be included in the deal, but the borrower may have less comprehensive insurance in place.  In these cases, for the deal to close, the borrower will need to have the policy amended to comply with the lender’s requirements.

Monthly payments can also present a problem.  Some borrowers pay their insurance premiums on a monthly basis.  This means that they could stop paying after the mortgage closes.  This would leave the lender to place their own (very expensive) insurance on the property.  For this reason, some lenders insist on a fully paid annual policy.  However, it’s often worth asking the lender for an exception to allow for monthly payments.  You’ll often get the exception.

If you find yourself in a situation where you’re navigating a deal where fire insurance may be a challenge, be sure to reach out to your lender.  We’re here to help.