You may have questions about home insurance while looking for your dream home. It's an additional cost of home ownership, so it's natural to wonder: Do you need home insurance, and if so, when do you purchase it?
Here is a list of frequently asked questions and answers to assist you in determining when you need homeowners insurance.
Is it necessary to have homeowners insurance?
Home insurance is not required by law. However, mortgage lenders will require you to obtain home insurance before they will agree to finance your home purchase. Home insurance safeguards the mortgage lender's investment by providing funds to repair or rebuild the home if it is damaged or destroyed by a fire, lightning storm, tornado, or other covered event.
What Type of Homeowners Insurance Do I Require?
There are numerous factors to consider, but for starters, you will most likely require home insurance which typically covers:
Your home: Home insurance can assist in the repair or rebuilding of your home and possibly other structures on your property, such as a detached garage or a storage shed, following damage from a covered loss.
Your belongings: Home insurance can help pay for the replacement of your possessions, from your couch to your china, if they are damaged or destroyed as a result of a covered loss.
A place to sleep: Additional living expenses (ALE) coverage in your home insurance policy may help cover the cost of a hotel or other lodging while your home is being repaired or rebuilt.
Legal fees: If a visitor slips on your walkway, you may be held liable. In this case, your home insurance can help cover the associated medical bills, legal fees, and potential court awards up to the policy's dollar limit.
A typical homeowners policy does not include coverage for earthquakes or floods. Depending on the location of your home, your lender may require you to purchase earthquake or flood insurance. Furthermore, if you have valuable items that exceed the special dollar limits of your homeowners policy, such as an art collection or fine jewelry, you may want to purchase additional coverage for those items, known as a Personal Articles Floater (PAF).
Is Hazard Coverage the Same as Homeowners Coverage?
Some mortgage lenders refer to "hazard insurance" as the portion of a home insurance policy that covers the home's structure. Even if the terminology appears to be a little perplexing, this simply means that the lender requires you to have home insurance. Depending on where you live, the lender may also require you to have flood insurance or other coverage.
What Kind of Homeowners Insurance Do I Need?
The amount of home insurance you may require is determined by the value of your home and belongings. First, consult with your agent about a recommended dollar amount that will cover the value of your home's structure, but also crunch the numbers to determine how much it would cost to rebuild in your area.
Next, make a list of your possessions to see if their value falls within the policy dollar limit for personal property, which is typically set at 50% to 70% of the amount of insurance on the dwelling. Consider getting Replacement Cost overage instead of Actual Cash Value coverage, which will pay the amount required to replace your items. Consider how much Additional Living Expenses coverage you'd require if you were forced to leave your home for an extended period of time. Finally, decide how much liability coverage you require. The Insurance Information Institute (III) recommends purchasing enough coverage to cover your assets, or at least $300,000 to $500,000 for the average homeowner.
Keep in mind that many insurance companies provide discounts if you combine policies, install smart home technology, or live in a 'green' home. Check with your carrier or insurance agent to see if there are any ways you can save money on your home insurance.
When Should I Get Homeowners Insurance?
Begin looking for home insurance as soon as you sign a contract to purchase a home. This gives you time to shop around for quotes and get your policy in place before closing on the purchase. Typically, you will have a month or more between signing a contract and closing on your new home. Do you need homeowners insurance before you close? Yes, you'll be required to show at closing that you've paid the first full year of homeowners insurance premiums.
How Long Does Homeowners Insurance Take to Get?
If you are purchasing home insurance for the first time, you are probably curious about the time frame for coverage. The good news is that obtaining a home insurance quote usually only takes a few minutes. If you decide to proceed and are in a hurry, you may be able to obtain a home insurance policy in a matter of hours, depending on the type of property you want to insure. Otherwise, getting home insurance usually takes one to three days.
Is Homeowners Insurance Required After I Pay Off My Mortgage?
Perhaps you purchased your home decades ago and the balance on your mortgage is approaching zero. Your mortgage lender will no longer have any say in whether you carry insurance after you've made your final payment. However, consider that you've spent years investing in your home and building equity, and if a loss occurs, you'll want to have insurance to protect your investment. Your home is your safe haven, where you raise your children and make memories that will last a lifetime. Home insurance can help protect that investment for the foreseeable future.
What If My House Is Damaged and I Don't Have Homeowners Insurance?
If your home or property is damaged by a fire, windstorm, or other covered event, your home insurance will cover the cost of repairs. However, if your home is damaged and you do not have home insurance, you will have to pay for repairs out of pocket or find other resources to help rebuild your home. You could lose your entire investment in the worst-case scenario. Maintaining your home insurance is a good way to ensure that you will be able to cover the costs of repairing and/or replacing your home and belongings if they are damaged by a covered loss.
Comments