A lot of investors don’t know that most property policies exclude coverage for a fire due to aluminum wiring. However, many homes being purchased as investment properties were built when aluminum wires were widely used and accepted by insurance companies. It’s estimated that between 1.5 to 2 million single-family homes, mobile homes, and multi-family dwellings were completely wired with aluminum. This number doesn’t even include properties that were partially wired with aluminum because of renovations, alterations, or additions.
What makes aluminum wiring dangerous?
Aluminum wires are larger, softer, and more brittle than copper, leading to poorer connections and connection failures. Aluminum’s oxidation process also creates a surface coating with high electrical resistance. That resistance is one factor in creating excess heat buildup in the connection. It is this breakdown of the connections at outlets, light switches, and other junctions that can create enough heat to start a fire.
A study done by the U.S. Consumer Product Safety Commission (CPSC) revealed that “homes wired with aluminum wire manufactured before 1972 (‘old technology’ aluminum wire) are 55 times more likely to have one or more connections reach ‘Fire Hazard Conditions’ than a home wired with copper.” A typical home can have 200 or more connections, exponentially increasing the risk of fire.
How can my investor client know if a property has aluminum wiring?
Aluminum wiring was widely used from the mid 1960s through mid 1970s to reduce construction costs when the price of copper suddenly escalated. If the property was built or remodeled between 1965 and 1973, the home is more likely to have aluminum wiring.
The electrical system will also be labeled. Cables with aluminum conductors will have “Al” or “Aluminum” marked on one side of the cable jacket every few feet along its length. Your investor client may also find markings that read “CU-clad” or “Copper-clad” which means the cable uses copper-coated aluminum wire.
Is there a way to make a property with aluminum wiring safer?
Yes, there are several ways to update a system that uses aluminum wiring as listed below. You and your investor clients should understand: the best option is to upgrade the electrical service to all copper. For homes with more square footage, some may feel replacing the entire system is not very cost-effective. However, it is the most effective way to know that all connections have been remedied.
This method involves splicing short pieces of solid copper wire to the end of the aluminum wire. The copper pieces are then used to make connections with the outlet, light switch, etc.
This is one of two methods recognized by the CPSC to provide a “complete and permanent” repair. The COPALUM method uses a proprietary crimp-on connector to join the copper wire to the aluminum wire. The dies and tools are only made available to electricians who receive training from the manufacturer, so investors should ask to see the credentials of anyone hired to complete this work.
AlumiConn is the second method recognized by the CPSC. This uses a lug-style connector that can be used in both residential and commercial applications. There are no special tools required to complete the connection and repair process. However, investors should always seek help from a licensed and insured electrician when seeking to remedy any wiring issue.
Is coverage available for investment properties with aluminum wiring?
Some insurance companies are willing to insure a property if the aluminum wiring is “corrected” through pig-tailing or the AlumiConn or COPALUM methods. Others, however, may not want to insure a property that has aluminum wiring as any part of the property’s electrical system. As each insurer’s stance on aluminum wiring can vary, your investor client should always inform you about this specific detail. Having to shop around a bit is much less of a hassle than having a fire and not having the damage covered.
What does the technical lingo for this exclusion look like in the investor client’s policy?
Sample policy language may look like this:
“We will not pay for the loss or damage caused directly or indirectly by or resulting from aluminum wiring. Such loss or damage is excluded regardless of any other cause or event that contributes concurrently or in any sequence to the loss. This exclusion applies whether or not the loss event results in widespread damage or affects a substantial area.
But, we will pay for loss or damage to Covered Property resulting from a fire caused by aluminum wiring if, prior to the fire causing the loss or damage, the aluminum wiring was remediated by a licensed electrician using the AlumiConn or Copalum connector methods; and all such remediation, including modifications and additions to installed wiring, was completed, inspected and approved and in compliance with all applicable local codes and laws.”
Or, if the policy excludes coverage for properties with electrical systems that contain aluminum it may read:
“Any location at which the electrical wiring is wholly or partially aluminum is excluded.”
*As insurance policies may vary, investors should check their own policy for language specific to covered properties.
How much can this type of damage cost the investor client?
Fire losses can vary from a few hundred dollars to a total loss of the property. They are among the top five most frequent losses for investment property owners and typically the costliest. If the investor client owns a multi-unit property, adjacent units could also become “casualties of war”, or the investor could even become liable for a fire that spreads to their neighbor’s property. Worse than property damage, a tenant could be injured if an outlet doesn’t work properly or if a fire starts from faulty electrical.
How can investors protect themselves?
First, investors should know what is in their policy: The investor should refer to the sections of the insurance policy that address aluminum wiring. It is important that your investor clients know what they are and are not covered for. If you or your client have questions, don’t hesitate to ask your Sales Manager, who would be happy to help!
Inspect electrical systems and make repairs promptly: Investors should complete a thorough inspection of your electrical system prior to purchase. Once aware of any repairs or upgrades that are needed, they should make repairs promptly. Continual use of a faulty electrical system amplifies the risk of fire. Hire licensed and insured electricians so electrical repairs are done safely and according to current local codes.
Once aware of any repairs or upgrades that are needed, repairs should be made promptly. Continual use of a faulty electrical system just amplifies the risk of fire. The investor client should hire licensed and insured electricians so electrical repairs are done safely and according to current local codes.
Regularly inspect smoke detectors and fire extinguishers: Smoke and carbon monoxide (CO) detectors should be tested monthly and investors should follow the manufacturer’s instructions for maintaining fire extinguishers. Daylight savings is a great time to change batteries in smoke and CO detectors. It is also a good idea to replace the alarms themselves every 10 years.
Make sure tenant have a fire escape plan: Investors should show tenants the location of fire protection devices and teach them how to use the fire extinguisher before they move in. Investors should map out emergency exits and encourage tenants to conduct their own safety drills with their family.
Investors should make sure their tenant understands that their personal property isn’t covered: Your investor clients will want to include a clause in the lease requiring tenants to carry renters insurance – and make sure to enforce it. Tenants should be aware that any insurance the investor carries on the property does not apply to the tenant’s personal belongings. Tenants should report any hazardous conditions on the property to the investor immediately. It may be beneficial for investors to include a section in the lease where the tenant acknowledges their understanding of these items. Another option is to purchase a product like ourTenant Protector Plan that does provide contents coverage for tenants.