How to Buy Homeowners Insurance For The First Time

Why Mortgage Lenders Require Homeowners Insurance

If you never owned a home before, and you’re planning on buying one, you’ll need to learn about the importance of home insurance, otherwise known as homeowners insurance. If you’re like just about everybody else, you’ll be mortgaging the property. 

Given that, your lender is going to require you to carry appropriate insurance coverage to cover its interest in the property. 

When it comes time to close on your new home, the lender will refuse to fund the transaction without satisfactory proof of proper insurance designating it as the payee mortgagee in the amount of the purchase price. You’ll have to bring proof of insurance with you at the time of your closing.

What Does Homeowners Insurance Cover?

Along with covering your lender’s interest in the real estate, home insurance also covers damage to or destruction of the property’s interior and exterior, the homeowner’s possessions and personal liability for negligently injuring somebody else. Many buyers overlook the fact that they’ll be needing home insurance. 

How to Choose the Right Homeowners Insurance Policy

With that in mind, you should start looking for coverage as soon as you enter into a contract to purchase your new home. Try these tips for choosing your home insurance coverage.

• Get Quotes Online and Compare Coverage: Of course, this is the fastest and easiest way of obtaining quotes. Be diligent, and do your homework. You want to know what you’re paying for. Some insurers offer better coverage than others. Make sure that any less expensive quotes are from quality insurance companies. Many insurance companies will have a homeowner insurance guide online to help you decide on the coverage that you need.                                                                 
• Don't Overlook Additional Coverage for Natural Disasters: Most standard home insurance covers risks like house fires or storm damage. Hurricanes, wildfires and earthquakes are different. Damage or destruction from those risks isn’t covered on a standard policy. If you’re buying on the Florida coast or just about anywhere in California, you’ll likely need special coverage for hurricanes, wildfires or earthquakes. You might even need special flood coverage.
• Ask About Potential Discounts:  If you’re going to be installing a security system in your new home, many insurers offer at least a 5% discount with that. If you insure your new home with the same insurer that you cover your cars with, additional discounts may apply. A simple inquiry about what types of discounts an insurer gives can save you money.
• Consider Special Endorsements for Valuable Items: Rather than leave tips for waiters and waitresses, Pablo Picasso would give them sketches that he’d draw and sign on napkins. One of those napkins is with thousands of dollars now. If you have special artwork, jewelry, antique furniture, musical instruments or the like of special value, you’ll need special endorsements covering them.
• Choose Between Actual Cash Value and Replacement Cost Coverage: If your home and personal possessions are destroyed in a fire, actual cash value coverage will cover the cost of your home and personal property after taking depreciation into consideration. What you paid for them isn’t relevant. Their current value controls. If you purchase replacement cost coverage, depreciation isn’t considered. You’d be able to repair or replace your home and personal property for up to what you paid for them. This coverage is more expensive than actual cash value.
• Explore Guaranteed Replacement Cost for Maximum Protection: This is an even higher level of coverage for whatever it would cost to repair or rebuild your home, even of that cost is more than you paid for your home. Ceilings apply though.
• Ensure Adequate Loss of Use Coverage: In the event that your home becomes uninhabitable from damage or destruction, you still have to pay your mortgage, and you’ll have additional living expenses on top of that. Although loss of use is part of most standard home insurance policies, you’ll likely want your loss of use coverage to be equal to about 20% of     the value of your new home.

A homeowner insurance guide from a quality insurer’s website will likely cover these tips for choosing home insurance in more detail. Another invaluable resource is equality insurance agent from your area. 

An independent agent who deals with several different companies might end up costing you a bit more money, but he or she would probably connect you with better coverage. Don’t be afraid to ask that agent questions. After an event that triggers a home insurance claim, that old adage applies. You get what you pay for.

The Risks and Costs of Not Having Homeowners Insurance

What would happen in the event someone slips and falls on your property and is injured? You will be left liable for the injured party's medical bills. 

A clause for liability coverage in your homeowner's insurance policy will cover this potentiality. Without this coverage, you could be liable for millions, or at least thousands, of dollars in medical bills and damages resulting from this incident.

Homeowner's insurance also keep you insured for protection against theft. Your policy will cover the contents of your home, such as jewelry, electronics, valuable silver or china pieces, any of your personal possessions. If you are mortgage-free and do not have a homeowner's insurance policy, anything stolen during a burglary will need to be written off. If you have repair issues due to the burglary, you will be responsible for those repairs.

There are financial consequences for allowing your homeowner's policy to lapse and then attempting to purchase the coverage later. Most insurers will be suspicious of a homeowner who drops coverage and then tries to get re insured. 

If you are allowed a policy, it may be at a much higher premium than you previously paid, as you will be viewed as a greater risk. Not carrying homeowner's insurance can be a red flag with the credit bureaus and may affect your credit score. 

How Much Does Homeowners Insurance Cost?

The cost of homeowners insurance, also known as home insurance costs, can vary widely depending on several factors.Understanding these factors can help you get a better grasp of what to expect and how to potentially lower your premiums.

Factors That Influence Home Insurance Costs

By understanding the factors that affect home insurance costs and exploring ways to save, you can find the best home insurance policy to protect your investment without breaking the bank:

• Location: Where you live plays a significant role. Areas prone to natural disasters like hurricanes, floods, or wildfires typically have higher premiums. Your ZIP code can even make a difference.
• Home Value and Replacement Cost: The higher the value of your home, the more it will cost to rebuild or replace in case of a total loss. This directly impacts your insurance costs.
• Home Characteristics: The age, size, construction materials, and condition of your home all factor into the cost of insurance. Older homes or those made with more expensive materials may have higher premiums.
• Coverage Limits and Deductibles: The amount of homeowners insurance coverage you choose and the deductible you select will directly impact your premium. Higher coverage limits and lower deductibles typically mean higher premiums.
• Claims History: If you have a history of filing insurance claims, you may be considered a higher risk and face higher premiums.
• Credit Score: In many states, insurance companies use credit-based insurance scores to help determine premiums.A good credit score can lead to lower rates.
• Insurance Company: Different home insurance companies have different pricing structures and underwriting guidelines, so rates can vary significantly.

Ways to Save on Home Insurance

To help you reduce your home insurance costs, here are several effective strategies that can lead to significant savings:

• Shop Around and Compare Home Insurance Quotes: Don't just settle for the first quote you get. Get quotes from multiple home insurance companies to compare coverage and prices. You can use online comparison tools or work with a home insurance agent to find the best deal.
• Increase Your Home Insurance Deductible: Choosing a higher deductible can lower your monthly premium.However, make sure you can afford the deductible amount if you need to file a claim.
• Bundle Your Policies: Many insurance companies offer discounts if you bundle your homeowners insurance with other policies, such as auto insurance.
• Make Your Home Safer: Installing security systems, smoke detectors, deadbolts, and other safety features can qualify you for discounts.
• Look for Other Discounts: Some insurers offer discounts for non-smokers, retirees, or those who have taken defensive driving courses.
• Maintain a Good Credit Score: A strong credit history can help you qualify for lower insurance rates.

Additionally, working with an independent insurance agent can be helpful in navigating the complexities of home insurance and finding the right coverage for your needs.

Living Without Home Insurance

Let's explore the options of not having homeowner's insurance from the complete guide to home insurance viewpoint. 

There are no laws requiring homeowner's insurance as there are with automobile insurance. If you drive without car insurance and are caught, a violation of criminal law occurs. There is no criminal penalty awaiting a homeowner without insurance. The risk is a private one. 

Loan documents, a mortgage or deed of trust on a home, contain legal jargon that spells out a borrower's obligation to maintain homeowner's insurance. Failure to maintain the insurance will allow the lender to foreclosure on the property. 

But first, the mortgage holder will purchase a policy and have the homeowner billed for it. Then non payment of the premium will result in foreclosure. It is good to note that the lender's policy will only cover the mortgage and the home. The homeowner's personal property is not insured. 

And remember, it will be more expensive if the lender purchases the insurance. It is much cheaper if the homeowner maintains his own policy.

A catastrophic result of no homeowner's insurance can happen in the event of winds, storms, tornadoes, hurricanes, earthquakes, or any horrific weather occurrence. Your home can be left with costly repairs and could be rendered unsafe. Relocation for many months can sometimes result. If the homeowner does not have proper insurance coverage, he bears the liability himself. 

Any homeowner can face the possibility of a lawsuit. The family dog bites a neighbor or visitor, or someone slips and falls on your front steps. Either one of these occurrences is cause for legal action. 

Not every claim is settled quickly. What if the visitor or neighbor sues and an uninsured homeowner has to hire an attorney. As legal fees are typically paid first, the cost of a trial can quickly eliminate your savings. 

This is where the homeowner's insurance is useful. The insurance company retains the attorney and pays all the fees. One serious personal injury could easily bankrupt a homeowner, thereby making liability coverage essential.

Renter's Insurance vs. Homeowners Insurance

While both renter's insurance and homeowners insurance offer valuable protection, they serve distinct purposes and cater to different living situations. Understanding the differences is key to ensuring you have the right coverage for your needs.

Renter's Insurance: Shielding Your Stuff, Not the Structure

Renter's insurance is designed for those who lease their homes, apartments, or condos. It focuses on protecting your personal belongings from perils like theft, fire, vandalism, and certain types of water damage.

Key coverages typically included in renter's insurance:

• Personal Property Coverage: This covers your furniture, clothes, electronics, and other belongings if they're stolen, damaged, or destroyed.
• Additional Living Expenses (ALE): If your rental becomes uninhabitable due to a covered event, ALE covers temporary housing costs like hotel bills and restaurant meals.
• Personal Liability Coverage: This protects you financially if someone gets injured in your rental or if you accidentally damage someone else's property.

Homeowners Insurance: Comprehensive Protection for Your Property and Possessions

Homeowners insurance is essential for those who own their homes. It provides comprehensive coverage for both the structure of your house and your personal belongings.

Key coverages typically included in a standard homeowners insurance policy:

• Dwelling Coverage: This covers the physical structure of your home, including walls, roof, floors, and built-in appliances, from perils like fire, windstorms, and hail.
• Other Structures Coverage: This covers detached structures on your property, such as garages, sheds, and fences.
• Personal Property Coverage: Similar to renter's insurance, this covers your belongings from theft, damage, or destruction.
• Liability Coverage: This protects you from financial liability if someone gets injured on your property or if you cause damage to someone else's property.
• Additional Living Expenses (ALE): If your home becomes uninhabitable due to a covered loss, ALE helps cover temporary living expenses.

Choosing the Right Coverage

While both renter's and homeowners insurance offer essential protection, the best choice for you depends on your living situation. If you rent, renter's insurance is a must-have. If you own your home, homeowners insurance is crucial.

To find the best home insurance, it's wise to compare home insurance quotes from different homeowners insurance companies. This will give you a better understanding of home insurance costs and help you find a policy that fits your budget and coverage needs. 

Remember, investing in the right insurance can provide peace of mind and financial security,protecting your belongings and safeguarding your future.

Related Content

• How to get cheaper home insurance
• Getting home insurance for a high value property

‍