How Exciting – You are either considering or in the process of buying a new home!  Before you close, you will want to understand the costs of the insurance on your new home and ensure that you have the proper coverage amounts.

There are many types of insurances and not all of them will be applicable to all properties.  Let’s discuss the different types of insurance and what you should know.


Homeowners Insurance

This is the most well-known type of home insurance.  This type of insurance is important for both you and your lender (if applicable).  Most standard homeowner’s insurance policies cover four areas: the structure of the home, personal belongings, liability protection and additional living expenses.

Homeowners insurance will pay to repair or rebuild the home in the event your home is damaged or destroyed by a disaster such as fire, hail, hurricane or another type of disaster outlined in the policy.  Of course, the amount of coverage can vary so please make sure that you have enough coverage to rebuild your home if needed.  If you have a mortgage on the home, the lender will require you to have a minimum amount that is no less than the loan amount.

This type of insurance will also cover personal belongings such as furnishings, clothes, and other personal effects if they are destroyed or stolen.  Like the dwelling, you will want to speak with your insurance agent to ensure that you have proper coverage.  It is recommended that you have an idea of the inventory in your home so that you can estimate the cost of replacement.

Homeowners insurance also includes liability coverage in the event someone tries to sue you for bodily damage or property damage done by you or one of your family members.  You should also discuss coverage for this area with your agent.  You may want a higher amount of coverage in order to cover yourself in case of a lawsuit.  Usually, the coverage for liability is $100,000 and greater.

Lastly, homeowners insurance will cover additional living expenses (ALE).  This is provided in the event your home is destroyed or damaged and you need to move out and rent a place.  Not only would it cover a roof over your head such as a hotel or rent, it includes meals, and other expenses with living.  This coverage does have limits so you will want to ensure that you have adequate coverage.


Hazard Insurance

Hazard insurance is part of the standard homeowner’s insurance policy.  This type of insurance will cover unintentional damage or destruction by fire, wind, hail, smoke, theft, or other similar events.  Hazard insurance protects homeowners and any mortgage lenders.  Mortgage lenders require hazard insurance of minimum amounts in order to get a mortgage loan.  The amount of insurance required by a lender will be at least equal to your mortgage balance.  However, you as the homeowner should insure the home at an adequate amount in order to protect your equity sufficiently.  In the event you do not have a mortgage, you should insure for replacement cost of the dwelling at a minimum.  If you are getting a mortgage, many lenders will escrow which means that your mortgage payment will be included in your monthly mortgage payment.  If the cost of the insurance increases, the lender will increase your payment.


Flood Insurance

It is important to note that homeowners insurance does NOT cover flood damage.  Depending on where the home is located, you may qualify for flood insurance through the National Flood Insurance Program or through a private insurer.  If you have a mortgage, the lender will require flood insurance if you are in a flood zone.  Flood zones are Zones A and V.  Flood insurance can be very expensive and so you will want to know if the home is in a flood plain before making an offer.  Having flood insurance can increase your monthly expenses drastically.  Therefore, you will need to understand what the obligations will be prior to making an offer.  If you pay cash for a home in a flood plain, you have to decide if you will pay the high premiums for insurance.  If your dwelling is damaged or destroyed by flood waters, you stand to suffer what may be a significant financial loss without flood coverage.


Homeowners Associations Master Policies  Condos and Townhomes

If you are purchasing a condo or a townhome, it is likely that the association has a master policy through the association.  In the event your monthly HOA fees includes the hazard insurance coverage for the structure, you will be covered by their limits on the building.  Typically, condos and townhouses will have master policies due to the fact that they have shared walls and if one unit is damaged, others are likely to be damaged as well.


Other Types of Home Insurance

Other types of insurance associated with homes are title insurance, private mortgage insurance and home warranties.

Title Insurance is paid at closing as is not an ongoing expense.  This type of insurance covers you and the lender against any monetary loss in the event there is a title dispute.

Private mortgage insurance (PMI) is the type of insurance required by lenders when you put down less than 20% on your new home.  PMI covers the lender in the event you default on your loan.

Home warranties cover the mechanical breakdown of individual parts of a home such as plumbing, electrical, and specific appliances.  They typically have limits of coverage and exclusions.  They have expiration dates unless renewed.  Generally, you pay an annual fee for coverage and a service fee of a set amount should you need to have someone fix something that is in need of repair.  For example, a home warranty may be $500 per year with an $85 service fee per maintenance call.  If you opt to have a home warranty you should compare costs of the warranty with coverages.


Shopping for Home Insurance

When shopping for home insurance you should get at least 3 quotes from insurance companies to ensure that you are getting the best deal.  In order to compare “apples to apples” you will want to determine the amounts of coverage and limits up-front and ensure that each insurance company provides a quote for the same amounts of coverages.  Also, inquire about discounts if they insure other items such as your automobile.

Please note that the premiums can vary due to a number of factors.  For example, it can vary based on the characteristics of the home.  Are there a lot of claims on homes in your area?  How far away is the home from the nearest water source or fire department?  Is your home brick or wood?  What is the cost to rebuild – it can be very different than the purchase price?

Premiums are also dependent on your choices and characteristics.  For example, what type of deductible will you choose?  What type of coverage do you want?  Have you filed claims in the past?  Do you have good credit?

The cost of your home insurance also will take into consideration things such as whether or not you have protection devices in the home such as smoke detectors or security systems.  Does the home have a wood furnace or wood stove?

Your premiums will depend on the answers to questions such as those above.  Remember, do your due diligence in this area as you will want to get the most competitive premiums and also insure your home for the proper amount to avoid any shortfalls in the event of a disaster.