Before your lender will agree to let you borrow money to buy your home, you must agree to insure the home. And you must have this insurance lined up before you can close the deal.
Having homeowners insurance (also known as hazard insurance) is a requirement before a bank or mortgage company will allow you to obtain a mortgage or complete a home sale. This insurance is also designed to protect the homeowner from being forced to go into debt when an emergency occurs. The coverage puts a homeowner in the financial position to repair or rebuild the house.
Types of Homeowners Insurance
There are two types of homeowners insurance: cash-value coverage and replacement-cost coverage.
Cash-Value Coverage
Cash-value coverage will pay you back for the depreciated value of your home and your personal property should they be destroyed. While is it usually cheaper than replacement-cost coverage, it will likely not allow you to rebuild your home if disaster strikes. Mortgage companies also tend to require a replacement cost policy.
Replacement-Cost Coverage
Experts recommend a replacement-cost policy that insures your home for the total cost to rebuild it, regardless of its market value — which includes other factors such as your neighborhood, local school district, the land, the type of construction, current condition and home features.
By using your appraisal and comparing it to your insurance agent’s worksheet, you can estimate the replacement cost of your home and buy a policy that will guarantee that amount.
Policies differ in coverage and costs. It is imperative that you work with an independent agent like Lallis and Higgins Insurance to find the policy that fits your needs. In addition, you need to understand any exclusions or limitations within the policy you choose.
You may need to purchase extra coverage depending upon several factors:
- What perils are more likely in your area that you want to be protected against (flood and earthquake insurance, for instance, may need to be bought separately).
- The replacement value of your possessions (fine art or expensive jewelry might require higher premiums).
- Special insurance needs.
All homeowners insurance policies come with a deductible. This is the amount you will pay every time you file a claim with the insurance company. A higher deductible comes with a lower premium, and vice versa.
Other tips about insuring your house:
- Check out a prospective insurance company’s financial strength.
- Compare rates and coverage.
- Choose a higher deductible in order to lower your premiums.
- Decrease your risk to insurers by installing things like a security system, deadbolt locks and smoke detectors in your home. Keeping your credit score high also makes you a better risk with many insurance carriers.
For more information on homeowners insurance when buying or selling a home, contact Lallis & Higgins Insurance.
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