Buying your first home is a momentous occasion and can be a mix of exciting and overwhelming. There are a lot of firsts that come with buying your first home – including purchasing homeowners insurance. Your lender will require you to secure home insurance before closing. That lender may provide insurance referrals, but ultimately it’s your decision which homeowners insurance policy will work best for you. So, where do you start? We’ve put together this guide to help first-time homebuyers answer their biggest home insurance questions.
Can I Buy Home Insurance Before Closing?
Even though you don’t yet own your new home, it’s a good idea to start shopping around for your home insurance about 30 days before closing. The reason is that most mortgage companies typically require evidence of insurance – called a binder – a few days before you close on your new home. It’s also a good idea to get quotes from at least three insurers. That’s why we work with multiple carriers to help you compare quotes and find the coverage that works best for you and your home. We also recommend checking Consumer Reports’ ratings of carriers to evaluate which companies received the highest ratings for satisfying their customers’ claims.
Should I Insure My Home At Market Value?
While insuring your home at market values seems like it would make sense, the truth is your homeowners insurance company is not interested in that number. They’re only interested in how much it would cost to rebuild your home. Since that cost doesn’t include the price of your land, oftentimes your homeowners insurance amount will be lower than the price of your home. When quoting your insurance, your agent will use a replacement cost estimator to estimate the cost to rebuild your new home. Make sure you review for accuracy. The estimate will be based on the materials and features in your home. The type of flooring and roofing can impact the cost to rebuild your home in the event of a claim.
What Do I Look For In A Home Insurance Policy?
Every home is unique, and the same is true for home insurance policies. Here are some questions worth asking when considering which homeowners policy is best for your new home.
What Are The Limits On Personal Property?
Most home insurance policies will cover personal property in your home, such as clothing, furniture, electronics, and jewelry. The important thing is to make sure that the limit is enough to cover everything you own. For example, more expensive items, like your jewelry and art, may require an additional insurance rider in order to ensure those items are fully covered.
What Are The Limits On Liability Coverage?
If someone injures themselves at your home and you’re liable, liability coverage is the part of your homeowners insurance that protects you. Most home insurance policies max out at $500,000, so you’ll want to ensure you’ve selected a liability limit that properly covers your assets. If additional coverage is needed, umbrella insurance policies can often provide extra liability coverage.
Depending on where you live, there are several things that won’t be covered on a standard policy. For example, most California homeowners insurance typically covers damages due to fire, smoke, lightning, hail, theft, and other exposures however, earthquake damage is often excluded. Other items that are often not covered by standard home insurance policies include landslides, mudflows, and flooding. Depending on where you live, if your area is prone to certain natural disasters, you’ll want to verify that your home is covered for those potential damages.
What’s My Deductible?
Much like car or health insurance, your deductible is the portion of a claim that you’re responsible for covering. Unlike other insurances, homeowners insurance may not be a set dollar amount. For example, your deductible could be a percentage of your policy’s dwelling coverage. Or your policy might include a split deductible, which means you have a set dollar amount for most claims, however a percentage may apply for other types of damage outlined in your policy. A $1,000 deductible is typical in California, but some people opt for a $2,500 deductible or higher to lower the cost of insurance. Depending on the price difference and your risk tolerance it may or may not be worth increasing your deductible for the premium savings.
When Should I Use My Homeowners Insurance?
Once you’ve found homeowners insurance that works for you, we know that as a first-time homeowner, it may be tempting to file a minor claim when a problem occurs. However, it’s important to think of your homeowners policy as something to use for significant , catastrophic losses rather than more minor maintenance issues. If you file a number of smaller claims – such as when the roof leaks due to weather – the insurer will pay it, but it may also raise your premium. And if three claims are filed within the first five years, you may be “nonrenewed”, which means you’d have to find a new homeowners insurance company to cover your home.
Can My Mortgage Company Pay for My Insurance?
Many mortgage loans have an impound account where the insurance premium and property taxes are paid out of your escrow account. Basically this means that your insurance is included in your monthly loan payment and you don’t have to pay for it separately. If that is the case all you have to do is provide your loan officer’s contact information (if this is a new purchase) or your lender’s information (if this is an existing loan) and when we finalize your insurance it is paid by your mortgage company. If you don’t have a lender yet let us know and we’re happy to refer you to some local lenders that can hook you up.
How Can I Save Money on Home Insurance?
There’s a few ways to save money on home insurance. One we mentioned above if reviewing your deductible. Another is bundling your auto and home insurance to get a multi-policy discount. There are also other discounts for new home buyers and discounts based on your occupation. Reach out today and we’re happy to review all the possible discounts and ways to save for you.
Of course, if you have more questions or would like to chat with us about any of the questions we’ve outlined here, our team is here to provide answers! We look forward to helping all our first-time home buyers with their homeowners insurance needs!