You’ve found your dream home, and you are ready to purchase and move in and begin your life. Maybe you are a first-time buyer, and you’ve been thinking about which wall to paint and where to put that piece of furniture, but before you do anything make sure you have homeowners’ insurance. If something happens to your home, you will be covered by homeowners’ insurance.
Before you make any commitments to any insurance company, shop at three or four different companies to compare coverage. Most states and most lenders require homeowners’ insurance. You don’t have to buy from a specific insurance company, but you should shop around not only for deals but for the best coverage that your money can buy for you. Make sure you read the customer reviews! You probably won't have to use your homeowner's insurance unless something bad happens, make sure you choose a company with excellent customer service reviews.
Escrow Insurance Payments with Mortgage
Escrowing your insurance payments with your mortgage is to add your monthly insurance payment onto your mortgage payment. The lender, also known as the bank, will pay the insurance premium for you and you pay the lender in addition to your mortgage payment. Typically, banks prefer this method because you are always secured, and banks know that your insurance is being paid on time every month.
Typically, you will have to pay one year of the insurance policy when you close on the house. You can typically lower your insurance payment by installing a security system, dead bolt locks, updated fire and sprinkler system, or choosing a home near a fire hydrant or department.
What Type of Home Insurance Coverage Should You Buy?
When you are buying homeowners’ insurance you have to make sure that you have adequate coverage. Here are the most common coverages:
HO-2. This is a broad policy that protects your home against sixteen perils outlined in your policy.
HO-3. This is a broad policy that protects your home against all perils unless they are specifically excluded from the policy.
HO-5. This is a premium based policy that covers new and well-maintained homes and covers all risks unless they are excluded from the policy.
HO-6. This insurance is for co-ops or condominiums that include personal property and liability coverage and cover’s improvements that you may make to the unit. This does not cover the actual structure. The actual structure is usually covered through the association.
HO-7. This policy is very similar to HO-3 except it is for mobile homes.
HO-8. This policy is exclusively for older home and is very similar to HO-2 but only covers cash value.
Do You Understand Your Policy?
Before you purchase a homeowners’ insurance make sure you understand the basic homeowners’ insurance terms.
A deductible is an amount that you pay out of pocket before your insurance paying anything out. If you want a lower annual premium, your deductible or your out-of-pocket cost will be higher.
A liability coverage will pay for medical or legal bills if someone gets hurt on your property, typically negligent.
Personal property is any tangible property on or inside your home such as electronics or clothing.
A premium is a price that you are paying for your insurance, typically a monthly or an annual rate.
Replacement cost insurance will pay the full cost to replace your home or personal property to a maximum amount. Typically, standard policies will offer replacement costs but read the fine print carefully to make sure the maximum amount is high enough to cover your home.
Actual Cash Value policy gives you the current market value including depreciation for your home or personal property. You can claim actual cash value on your home, but also get replacement cost for your personal property.Your insurance will include specific limits, but also include sub-limits. For example, if the sub-limit within your coverage on your personal property for $250,000 policy would typically be $125,000 or 50% of home coverage.
Lastly, you need to be aware of are riders. Riders are considered to be expensive jewelry or artworks or antiques because typically they are too valuable to be covered under a regular personal property. Buying a home can most definitely be overwhelming, but making sure you are covered when disaster hits is always good. Buy homeowners' insurance today to protect your dream home.