There is no choice in this situation. If you do not renew your homeowner's insurance, the mortgage holder will instate its own policy, which will probably be significantly more expensive than your policy.
In this home insurance guide, we will provide you with the information you need to have adequate coverage for your home.
As already discussed, when you carry a mortgage on your home, it is required that your homeowner's insurance protect the lender.
But what if you own your home outright and you choose to have no homeowner's insurance. You run the risk of suffering a total loss of what is more than likely your most significant financial asset. If your home is destroyed in an earthquake, hurricane, or fire, you will be left to deal with the complete loss of an investment worth hundreds of thousands of dollars in most cases. And you may be left homeless.
Tips for Choosing Home Insurance
If you never owned a home before, and you’re planning on buying one, you’ll need to learn about the importance of home insurance, otherwise known as homeowners insurance. If you’re like just about everybody else, you’ll be mortgaging the property.
Given that, your lender is going to require you to carry appropriate insurance coverage to cover its interest in the property.
When it comes time to close on your new home, the lender will refuse to fund the transaction without satisfactory proof of proper insurance designating it as the payee mortgagee in the amount of the purchase price. You’ll have to bring proof of insurance with you at the time of your closing.
What is Homeowners Insurance?
Along with covering your lender’s interest in the real estate, home insurance also covers damage to or destruction of the property’s interior and exterior, the homeowner’s possessions and personal liability for negligently injuring somebody else. Many buyers overlook the fact that they’ll be needing home insurance. With that in mind, you should start looking for coverage as soon as you enter into a contract to purchase your new home. Try these tips for choosing your home insurance coverage.
- Get Quotes Online: Of course, this is the fastest and easiest way of obtaining quotes. Be diligent, and do your homework. You want to know what you’re paying for. Some insurers offer better coverage than others. Make sure that any less expensive quotes are from quality insurance companies. Many insurance companies will have a homeowner insurance guide online to help you decide on the coverage that you need.
- Look for What You’re Not Getting: Most standard home insurance covers risks like house fires or storm damage. Hurricanes, wildfires and earthquakes are different. Damage or destruction from those risks isn’t covered on a standard policy. If you’re buying on the Florida coast or just about anywhere in California, you’ll likely need special coverage for hurricanes, wildfires or earthquakes. You might even need special flood coverage.
- Discounts: If you’re going to be installing a security system in your new home, many insurers offer at least a 5% discount with that. If you insure your new home with the same insurer that you cover your cars with, additional discounts may apply. A simple inquiry about what types of discounts an insurer gives can save you money.
- Don’t Forget that Picasso: Rather than leave tips for waiters and waitresses, Pablo Picasso would give them sketches that he’d draw and sign on napkins. One of those napkins is with thousands of dollars now. If you have special artwork, jewelry, antique furniture, musical instruments or the like of special value, you’ll need special endorsements covering them.
- Actual Cash Value vs. Replacement Cost: If your home and personal possessions are destroyed in a fire, actual cash value coverage will cover the cost of your home and personal property after taking depreciation into consideration. What you paid for them isn’t relevant. Their current value controls. If you purchase replacement cost coverage, depreciation isn’t considered. You’d be able to repair or replace your home and personal property for up to what you paid for them. This coverage is more expensive than actual cash value.
- Guaranteed Replacement Cost: This is an even higher level of coverage for whatever it would cost to repair or rebuild your home, even of that cost is more than you paid for your home. Ceilings apply though.
- Loss of Use: In the event that your home becomes uninhabitable from damage or destruction, you still have to pay your mortgage, and you’ll have additional living expenses on top of that. Although loss of use is part of most standard home insurance policies, you’ll likely want your loss of use coverage to be equal to about 20% of the value of your new home.
A homeowner insurance guide from a quality insurer’s website will likely cover these tips for choosing home insurance in more detail. Another invaluable resource is equality insurance agent from your area.
An independent agent who deals with several different companies might end up costing you a bit more money, but he or she would probably connect you with better coverage. Don’t be afraid to ask that agent questions. After an event that triggers a home insurance claim, that old adage applies. You get what you pay for.
Liabilities And How Home Insurance Protects You
What would happen in the event someone slips and falls on your property and is injured? You will be left liable for the injured party's medical bills.
A clause for liability coverage in your homeowner's insurance policy will cover this potentiality. Without this coverage, you could be liable for millions, or at least thousands, of dollars in medical bills and damages resulting from this incident.
Homeowner's insurance also keep you insured for protection against theft. Your policy will cover the contents of your home, such as jewelry, electronics, valuable silver or china pieces, any of your personal possessions. If you are mortgage-free and do not have a homeowner's insurance policy, anything stolen during a burglary will need to be written off. If you have repair issues due to the burglary, you will be responsible for those repairs.
There are financial consequences for allowing your homeowner's policy to lapse and then attempting to purchase the coverage later. Most insurers will be suspicious of a homeowner who drops coverage and then tries to get re insured.
If you are allowed a policy, it may be at a much higher premium than you previously paid, as you will be viewed as a greater risk. Not carrying homeowner's insurance can be a red flag with the credit bureaus and may affect your credit score.
Living Without Home Insurance
Let's explore the options of not having homeowner's insurance from the complete guide to home insurance viewpoint.
There are no laws requiring homeowner's insurance as there are with automobile insurance. If you drive without car insurance and are caught, a violation of criminal law occurs. There is no criminal penalty awaiting a homeowner without insurance. The risk is a private one.
Loan documents, a mortgage or deed of trust on a home, contain legal jargon that spells out a borrower's obligation to maintain homeowner's insurance. Failure to maintain the insurance will allow the lender to foreclosure on the property.
But first, the mortgage holder will purchase a policy and have the homeowner billed for it. Then non payment of the premium will result in foreclosure. It is good to note that the lender's policy will only cover the mortgage and the home. The homeowner's personal property is not insured.
And remember, it will be more expensive if the lender purchases the insurance. It is much cheaper if the homeowner maintains his own policy.
A catastrophic result of no homeowner's insurance can happen in the event of storms, tornadoes, hurricanes, earthquakes, or any horrific weather occurrence. Your home can be left with costly repairs and could be rendered unsafe. Relocation for many months can sometimes result. If the homeowner does not have proper insurance coverage, he bears the liability himself.
Any homeowner can face the possibility of a lawsuit. The family dog bites a neighbor or visitor, or someone slips and falls on your front steps. Either one of these occurrences is cause for legal action.
Not every claim is settled quickly. What if the visitor or neighbor sues and an uninsured homeowner has to hire an attorney. As legal fees are typically paid first, the cost of a trial can quickly eliminate your savings.
This is where the homeowner's insurance is useful. The insurance company retains the attorney and pays all the fees. One serious personal injury could easily bankrupt a homeowner, thereby making liability coverage essential.