If you are going to get a mortgage you will have to get homeowners insurance. There is no way around it. Although it is true that you have no choice in the matter when you get a mortgage, you could consider that your hazard insurance policy is more like an asset protection policy.
Just think about it for a moment. You own a home and something happens to it like a fire or a tree falls on it during a thunderstorm. What happens? Well, if you have insurance, you get money to repair or rebuild depending on the nature of the accident. Without insurance, you do not get anything. The mortgage company requires that you have insurance to protect their investment in your home. They want to be able to get their money back if the home burns down too.
Homeowners Insurance Policy Basics
Given that you have to have it, let us look at some of the key basics of your homeowners insurance policy. What does your policy cover? In general, your policy will cover the repair costs to fix or rebuild your home (and even structures on your property like a shed or detached garage) in the case of some catastrophe, or peril. Some perils covered are a fire in your home, water damage from a broken water pipe in a bath or kitchen, damage due to a fallen tree, or even wind damage.
One thing to be aware of, many homeowners insurance policies do not cover losses due to flooding caused as a result of living in a flood plain or earthquake damage caused by an earthquake. These types of catastrophes are covered with additional insurance policies. Generally, when you get your mortgage for the first time, your mortgage company will specify what type of coverage they want to satisfy their needs. For any additional coverage you may want, you will have to get on your own.
Homeowners Policy Can Cover Personal Property Too
In addition to covering your physical structures on your property, your policy will cover most of your personal items in your home. Things that are included could be thought of as everything that could be stolen or that would drop out if your house was turned upside down and shaken. Although, there are some limits to your policy when it comes to personal items like cash, jewelry, furs and personal papers. Make sure you check with your insurance carrier about what is covered and what is not.
Personal Injury Is Likely Covered With A Homeowner's Policy
A very important area of coverage is personal injury claims. This includes someone coming to your home on a winter night and they slip and fall on your porch on a patch of ice. If they file a claim against you, your policy should cover it. In the case of liability, members of your household can be covered even if they are away from your home. Make sure you check with your insurance company so that you know exactly how and for what you are covered. You may be surprised at how much is covered that you would not naturally think you would be covered for.
Dwelling Replacement Coverage
The last point we will cover here is your dwelling coverage limits on your policy. When you get your mortgage your policy will have to cover the replacement value of your home. You will typically find this information out during the lending process or from the appraisal.
You need to be careful here for a couple of reasons. First of all, if your home value goes up so could your replacement value. If you do not check your policy coverage you could be in a touch situation down the road if you have a fire and want to rebuild. You might not be able to and you could be stuck with no place to live and not enough money to payoff your mortgage.
The second situation you will want to be aware of is if you put an addition on your home. Sometimes the improvements you make are not automatically covered if they raise the value of your home. You will need to have your insurance adjusted before you start the remodel to cover any problems during the remodel and thereafter. The best thing to do is to call your insurance carrier before you start any remodeling project to see about adjustments on your policy.
Hopefully some of your questions about the basics of homeowners insurance have been covered for you in this article. Make sure you ask your insurance carrier questions, because you do not want to hear them say, “Sorry that is not covered” after something happens to your home, or personal items, etc. You should also touch base with your insurance company at least annually to review your policy coverage to make sure you are fully covered. Again, you do not need any surprises when you most need your policy.
Shop Around - Insurance Carriers Specialize
Not all insurance carriers are equal. Some carriers do better with insuring older homes than other carriers for example. This also applies to your credit profile. You could be facing higher insurance rates with bad credit and lower credit scores. If you have poor credit you might want to consider Ways To Improve Your Credit.
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