When you decide you want to buy a new home, Homeowners
Insurance may not be the first thing you think about. However, mortgage lenders require you to have Homeowners Insurance before they will approve your loan. And as you prepare to make one of life’s biggest purchases, there are a few things you should know about protecting your investment. Here are just a few facts to keep in mind regarding Homeowners Insurance…
- The limit on your Homeowners Insurance policy is based on the cost to rebuild your home, not its market value. In many cases (but not all), the cost to rebuild is greater than a home’s market value. Therefore, if your insurance only covers the market value of the property, you may not be able to afford to replace it after a total loss — and you may incur a penalty on the claim payment in the event of a partial loss.
If you intend to stay in your property, you may be less concerned about the ups and downs of real estate market prices than with making sure your insurance coverage is adequate to replace the property, if necessary. After the housing market imploded in 2008, more than 25 percent of 800 people polled by the Insurance Information Network of California mistakenly thought they should reduce their home insurance because market values had dropped. This line of thinking could lead you to having less insurance than you’d need should you have to rebuild.
Note that this underscores the difference between a mortgage lender’s perspective and a home owner’s perspective toward home insurance. The lender requires you to insure enough to protect the balance of their mortgage loan to you, while you need to protect the entire home and its contents.
- When it comes to protecting the contents of your home, one of the not-so-fun facts about home insurance is that standard policies put dollar limits on certain valuables. So, if you own expensive items such as jewelry, furs, fine art and antiques, you need to specifically schedule the items (based on appraisals) on the policy in order for them to receive the broadest form of coverage.
You should keep an updated inventory of your belongings and their value, and check periodically with your insurance agent to make sure these items are adequately covered.
- Certain types of claims are excluded from most Homeowners Insurance policies. Standard policies don’t cover floods or earthquakes. If you want coverage for flood or earthquake damage, you will need separate policies for those. If you are in a flood zone, your mortgage lender may in fact require you to purchase flood insurance.
- Your Homeowners policy is not designed to replace basic home maintenance. If damage results from your failure to properly maintain the property, the insurance company may deny a claim that results from that poor maintenance.
Here’s an example: suppose you persistently fail to fix a leaky roof. If this results in water damage to the structure and possessions below that roof, the insurance company may deny your claim because it is due to negligence rather than an accident.
- Over time while living in your new home, you will acquire new personal possessions, perhaps some new valuables, and you may do some home improvements or build an addition or a detached structure. You should always report these to us right away so we can ensure your coverage is sufficient for your investment.
Enjoy your new home, you deserve it!