Homeowners Insurance

Congratulations, you are officially a homeowner! Now, you must protect your investment, so let’s get started.

WHAT IS THE DIFFERENCE BETWEEN HOMEOWNERS INSURANCE AND MORTGAGE INSURANCE?

All mortgage lenders require homeowners insurance to protect their and your investment.

A homeowner's insurance policy protects your home's structure, attached structures, and personal belongings from damage or loss due to fire, theft, storms, and other events covered by your insurance policy. Your personalized homeowner's insurance policy is beneficial, ensuring the repair or replacement of items damaged or destroyed by such events.

Most homeowner’s insurance policies include liability coverage as well. This coverage protects the homeowner if someone is hurt or injured while on your property. Liability coverage also protects you if you are found liable for damage to someone else’s property.

Many homeowners pay for their insurance through an escrow account as part of their monthly mortgage payment. When their insurance bill is due, their mortgage lender pays it from their escrow account. Most homeowners find this payment method helpful, especially when budgeting expenses.

Mortgage insurance, or PMI (private mortgage insurance), is a supplemental insurance policy required for some mortgages with a down payment lower than 20%. The amount varies until you reach 20% equity in your home. PMI lowers the risk to the lender, so you can qualify for a loan that you might not otherwise be able to get. Depending on the mortgage loan type, mortgage insurance payments can be made differently. Making a larger down payment on the purchase of your home helps to avoid paying mortgage insurance.

BELOW ARE SOME MAIN TOPICS CONCERNING HOMEOWNERS INSURANCE:

1. Why do lenders require homeowners’ insurance before closing?

   1. There are no laws requiring home insurance. However, mortgage lenders do require coverage before agreeing to finance a home purchase.

   2. This requirement protects your investment from unexpected damage, like fire or burglary.

   3. Depending on the area where the home is purchased, additional insurance policies might be required. Examples include floods, windstorms/hail, earthquakes, etc.

2. What information about your home is needed to obtain insurance?

   1. Year the home was built.

   2. Total Square Footage of the home.

   3. Age, composite, and shape of the roof. (Most insurance companies will not cover a roof older than 10 years).

   4. New build OR date of upgrades, if known: new HVAC, roof, wiring, plumbing, etc.

   5.  Construction type: wood frame, wood frame with brick, concrete, concrete block, etc.

3. While shopping for homeowners’ insurance, make sure you have enough coverage for:

   1. The structure of the home.

   2. Additional structures on the property.

   3. Replacement cost or actual cash value of all personal possessions. Examples: furniture, paintings, accessories, jewelry, etc.

   4. Consider all liabilities to others.

4. How to determine what your deductible should be:

   1. First, an insurance deductible for a homeowner’s policy is the amount of money you are responsible for paying out of pocket before your insurance kicks in to cover the rest of a claim. For example, if you have a $1,000 deductible and file a claim for $5,000 in damages, you will pay the first $1,000, and your insurance will cover the remaining $4,000.

   2. The deductible helps reduce the overall insurance cost by sharing some risk between you and the insurance company.

   3. Consider your overall financial situation.

   4.  Make sure you can comfortably pay your deductible out-of-pocket based on your budget.

   5. Maintain enough funds in a savings account to cover your deductible.

   6. Facts to remember: Paying a higher deductible will typically lower your premiums; choosing to pay a lower deductible means you will pay higher monthly premiums.

5. Are insurance policies all the same, or can they only be customized to fit my needs?

   1. No, home insurance policies are not the same.

   2. While most policies cover common risks like fire, theft, and certain natural disasters, the specific coverage, limits, and exclusions can vary widely.

   3. Policies can differ regarding what events are covered, the amount of coverage for the dwelling and personal belongings, and additional features like liability protection or coverage for detached structures.

   4. Insurance companies also offer different policy endorsements and optional coverages, allowing homeowners to customize their policies based on their specific needs and location.

   5. The best insurance policy is the one that a Licensed Agent lays out for you, explains your options, and allows you to customize it to fit your needs and budget

6. Are there ways to save money on home insurance rates?

   1. In most states, insurance companies use your credit score to determine your premiums. Another reason to always make sure your credit score stays healthy.

   2. Get multiple quotes from different insurance companies or brokers.

   3. Bundle your policies: home, car, etc.

   4. Search and ask for discounts: Veterans, First Responders, etc.

   5. Add safety features to your home: security system, smoke detectors, etc.

   
   

COMMON MYTHS SURROUNDING INSURANCE:

1.     If I change insurance companies, my credit score will drop.

NO. Changing insurance companies will not directly affect your credit score. When you switch insurers, the new company may perform a "soft credit check" to determine your insurance score, but this type of inquiry does not impact your credit score. Unlike "hard credit checks" used for loans or credit cards, soft checks do not appear on your credit report as a negative factor.

2.     If I file a claim, I will be dropped by my insurance company.

Filing a home insurance claim doesn’t automatically mean your insurance company will drop you, but it could increase the risk. Insurers understand that claims are sometimes necessary, especially for significant damage or covered events. However, if you file multiple claims within a short period, or if the claim is for something considered high risk (like water damage or liability claims), the insurer may decide not to renew your policy when it comes up for renewal. Each company has its guidelines, so while one insurer may view a claim unfavorably, another might be more lenient. It’s always wise to weigh the situation before filing a claim, especially for more minor losses, as it may impact your premiums or eligibility for coverage in the future.

3.     I can’t file a claim for 5 years when I change to a new insurance company.

The idea that you cannot file a claim for five years after switching to a new insurance company is a misconception. No blanket rules or regulations prevent you from filing a claim because you've changed insurers. You can file a claim with your new insurance company if a covered event occurs, regardless of how long you’ve been with them.

However, some insurers may look at your claims history when you switch and consider it when setting your premiums or underwriting your policy. If you’ve had frequent claims in the past, a new insurer might impose higher premiums, certain coverage limitations, or even a higher deductible. However, if the damage or loss falls within the coverage terms of your new policy, you are entitled to file a claim. There is no five-year waiting period for claims.

Protecting your investment should always be a top priority. Your mortgage lender can provide information that may help you make the best decision for your needs. After selecting the right insurance company for you, remember you can always call and ask your insurance agent questions. Enjoying your new home is even sweeter knowing it’s protected!