Most homeowners are aware that there is homeowner’s insurance available to them. They sometimes get confused as to what this covers. Also, whether they have to have this type of insurance because they have a mortgage on the home.
Different Types of Home Insurance
It can get a little confusing as to what type of insurance a homeowner has to have or wants to have. There are three basic types.
Which pertains to mortgage default insurance. This is mandatory for those who have less than 20% to put down on their house purchase.
Mortgage Life Insurance:
This type of insurance is in place to pay out the mortgage in the event of the mortgage borrowers death.
Home Owners Insurance:
This form of insurance is put in place to financially replace the property and contents in the event of various types of damage that could occur. It also can include liability coverage. Which means it will cover the insured in the event of personal or property damage to a third party.
Is Homeowner’s Insurance Required for a Mortgage?
Homeowners insurance is not mandatory by law. But, most mortgage lenders will insist on proper home insurance being put in place.
Do You Have to Pay for Homeowner’s Insurance Before Closing?
Most new home buyers are surprised to learn that their mortgage company is demanding they have homeowner’s insurance. Not only that most often proof of this has to be in place upon the closing of the purchase. It is because the mortgage lender needs to know that the homeowner’s insurance has been approved.
Also, that adequate coverage has been put in place. If the insurance requirements are not attended to properly it can delay the closing of the purchase of the house. In most cases, proof of insurance has to be given to the purchaser’s lawyer that is closing the deal. Who will then forward this proof on to the mortgage lenders.
Choosing the Right Home Owners Insurance
While you will be expected to have homeowners insurance to cover your mortgage think beyond this. You don’t want just enough insurance to cover the cost of the mortgage. You want enough coverage to make sure that it is going to protect your interests besides just the mortgage holder. The mortgage holder is concerned about the replacement value of the home. You as the homeowner have to be concerned about other financial risks with your home. Such as the personal belongings. Also, liability coverage.
What Type of Coverage Should You Look For?
First, the homebuyer needs to know what the demands of the mortgage lender are. When it comes to the amount and type of coverage for the protection of the mortgage. They are likely going to want;
- At least the minimum amount of coverage to cover the amount of the mortgage owed.
- Possibly Guaranteed Replacement Insurance. This means the insurance coverage will cover the costs to rebuild the house. If this is required. The rebuild will be as similar to the destroyed house as possible.
How Much is Home Owners Insurance Going to Cost?
As with any other type of insurance the costs will be specific to each insurance shopper. The premiums are going to be determined based on many different factors.
- How much would the insurance company have to pay if they had to replace the dwelling.
- What neighbourhood is the dwelling located in.
- The age of the home.
- The electrical system that the house is comprised of.
- The plumbing system.
- Roof condition.
- How close is the house to fire resources such as fire hydrants and fire halls.
- Past Claims.
Once the insurance company has all the answers to these metrics, they will determine the cost of the premiums.
The Importance of Home Liability Insurance
Although the homeowners insurance is going to be important for the mortgage obligations, liability coverage is equally important.
This is the type of insurance that protects the homeowner against lawsuits where a person or their property may have become damaged when they were staying or visiting your home. For example, if an individual tripped and fell and received a personal injury. They may incur medical costs. They could come after the homeowner to cover these costs. If the homeowner has liability insurance included in their homeowner’s insurance, then they will be likely protected for these costs.
Keeping the Insurance Company Informed
Once the premiums are set for the house, it doesn’t end there. If the homeowner makes improvements to the home, it can increase the replacement cost if something were to happen to the home. The insurance company has to be notified of any betterments to the home. In some cases, this can mean a change in the premiums.
Homeowner’s Mortgage Insurance Obligations
When individuals are required to have homeowner’s insurance to cover their mortgage, the Insurance company needs to be aware of this. As there will be some differences noted in the insurance policy.
There could be a clause in the policy that makes the mortgage holder the beneficiary of the home owner’s claim.
If a claim occurs, it will get paid out to the mortgage holder. Depending on the insurance company they may;
- Give the policyholder the money to repair the home
- Give it to the lender. Then the lender would issue the money to the homeowner to allow them to do the repairs.
However, every insurance company is different. The insurance shopper should ask pertinent questions as to how they will handle claims. Also, check the policy to see who has been named as the beneficiary.
Shopping Around for Home Owner’s Insurance
There are different ways that insurance shoppers can shop for this type of insurance. One of the quickest, easiest and most effective ways is by getting insurance quotes. Then the choices can be narrowed down according to the quotes. The insurance shopper can do further research into these quotes to determine which one best suits their needs.