Insurance 101 for Homebuyers


Skycrest Plan 3 | Inland Empire

Know home insurance basics.
Many people shop for months before finding their dream home, but spend mere minutes on the very thing that protects their important investment — home insurance. Whether you’re a first-time homebuyer or a multi-home veteran, chances are your mortgage payment will take the largest bite out of your monthly budget. So, it’s especially important to make sure you know about getting the right coverage to protect your home.

Get started.
Find out what you need from your mortgage lender. Besides homeowners insurance, additional coverage like flood insurance may be required.

Contact multiple insurance companies and/or independent agents to compare coverages. Many companies offer a discount if you already have your car insurance policy with them. An independent agent can give you price quotes from several insurers.

Look at value.
Don’t shop just on price, but compare coverage, price and customer reviews. In most cases, if you are dealing with an insurance company, it will be in a time of disaster or a significant problem. You will want to make sure your insurance carrier has good customer service reviews. You can also check out an insurer’s complaint record through your state’s Department of Insurance.

Decide what you need.
Before you get home insurance quotes, you’ll need to know how much coverage to get. For insurance companies, a home’s value is based on the cost to rebuild the house, not the market value. Your agent can help you determine what you need based on the composition and size of your home.

Know what your policy covers.
There are different kinds of insurance policies that cover homes. They range from a basic policy to those that provide broader protection. In general, most standard policies cover damage caused by fire, windstorms, hail, lightning, theft or vandalism. Typically, floods and earthquakes are excluded and will need a separate policy.

Always check with your agent about your specific policy, but most standard homeowners policies provide:

  • Dwelling coverage – pays to repair or rebuild your home
  • Other structures coverage – covers damage to detached structures like garages, sheds and fences
  • Personal property – reimburses you for damage to personal items or contents in your home such as furniture, clothing and electronics
  • Loss of use – pays for additional housing and living expenses if you have to move out of your home while it is being repaired
  • Liability insurance – protects you in case someone is injured on your property

Know what is not covered.
Most policies set limits on certain items, such as jewelry. If you have valuable items, such as jewelry, antiques or furs, you may want to purchase a “rider,” which is separate coverage for those items’ full value. Talk to your agent about obtaining additional coverage if needed. Additionally, certain perils, such as hurricanes, floods and earthquakes, require a separate policy from your homeowners policy.

If a loss occurs, policyholders pay a set amount, a deductible, before insurance coverage kicks in. Deductibles vary, but often they are $500 or $1,000. Usually, the higher the deductible, the lower the premium. Some policies have a percentage deductible where you pay a percentage instead of a set dollar amount. For example, if your home is insured for $200,000 and you have a two percent deductible, you would be required to pay $4,000 toward the cost of a damage claim.

Paying for insurance.
The majority of homeowners include their monthly insurance cost into their mortgage payments. The lender pays your insurance premiums (and usually property taxes, too) out of your escrow account. There are exceptions depending on how much down payment is received and the amount of equity in your home.

The best thing you can do.
Make sure you have the right coverage. Take an inventory of your possessions (via video or hard copy), and keep it in a safe place. Update it regularly. Meet with your agent once a year to determine if your coverage needs have changed. The time to find out you’re not covered – or don’t have enough coverage – is not after a heart-wrenching event like fire, theft or earthquake.

In the market for a new home? Connect with a New Home Specialist today.

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