Homeowners Insurance

Most lenders will require that you have homeowners insurance in place before the closing.  This can also be called “hazard insurance” because it covers natural disasters like fire and storms, and theft. First American offers home owner insurance policies  you can trust.

• Why do you need insurance for a house you don’t own yet?
  Lenders generally require you to have a Certificate of Insurance, Insurance Binder or some other document showing proof of insurance by the date of closing.  If you don’t have it, you can’t close on the home. 
  
  Basically, the lender won’t fund the loan on a property that isn’t insured, and the lender will often require certain types of insurance and at a specific financial level (usually at least the amount of the loan) to make sure they won’t lose their money in the event of a disaster.
  
  Also, some states require homeowners carry specific types of insurance, like earthquake or flood insurance.
• Types of Coverage: Most insurance policies have several sections, each one covering a different aspect of homeownership:
  • Dwelling Insurance: pays for damages to the structure of the home, outbuildings, detached garages, etc.
  • Personal Property: covers household items, including furniture, clothing, appliances and electronics which are damaged or stolen. (After an event,  many people find that they have a lot more stuff than is covered in their policy, do an inventory and videotape your possessions.
  • Liability Insurance: protects you against financial loss if you are found legally responsible for someone else’s injury or property damage
  • Medical payments: pays the medical bills for anyone injured on your property (and some injuries away from the property, for example, if your dog bites someone)
  • Loss of Use: covers living expenses if your property is destroyed or too damaged to live in while being repaired 

• Flood Insurance: many lenders and some states require a specific policy for flood insurance. 
  The property may be far from water, but if it is located in a designated flood plain, you may have to get a policy that covers losses due to water damage from heavy rains, erosion, sewer backup or rising rivers and streams.   Most standard homeowners policies don’t cover this type of damage.

• Types of Reinbursement: there are two forms of reimbursement for damages:
  • Actual Cash Value: the amount you paid for the item, minus depreciation.  So if you paid $10,000 for a new roof five years ago and it was destroyed in a storm, the insurance company would give you maybe $7,500 to take the 5 years of depreciation into consideration
    
  • Replacement Value: the amount it would cost to replace the item (with an identical or similar item) in today’s dollars. 
    
    These policies usually give you a higher reimbursement than actual cash value policies, and so cost more. In some cases, these policies allow the insurance company to decide how the house is repaired (they dictate what is an appropriate replacement)
    
    Your policy amount will not match the dollar value of the property, since it doesn’t include the value of the land.  If you aren’t sure how much it would cost to rebuild your home, your insurance agent will have construction tables to help you figure out an amount.

Know your policy limit:

If you insure your home for $100,000, that is the maximum amount you will receive, even if it costs more to repair or rebuild it.  Check the Declarations page on the first page of the policy and make sure you are comfortable with what it states for your coverage.

It’s not exactly fun to read, so many people don’t, only to discover afterward that they aren’t covered for the kind of flood/storm/fire that destroyed their home and everything in it. 

Thousands of people are still struggling with their insurance companies over damage done by Hurricane Katrina: they could be covered for hurricane damage, but not for wind-driven water intrusion, or vice versa.  Make sure you know what you are covered for and what risks you are taking.

• Personal Property: When they file a claim, many people find that they have a lot more stuff than is covered in their policy.