For most people, the largest purchase they make in their lives is their home. Add to that value the value of our personal possessions, clothing, artwork, jewelry, furniture and more, and you have a high dollar possession that requires insurance so that we can survive its loss to casualty.
Homeowners insurance is how we insure ourselves against loss, and there are a number of very large companies that provide it, usually also giving discounts if you insure your car or boat with them as well. Your lender will require this coverage, with a clause to cover the lender’s investment, the amount owed on the mortgage.
Right along with mortgages, homeowner policies have become more difficult to get, with more information required, including credit checks in most cases now. While many people argue that a buyer’s credit score is not relevant to insuring their home, the insurance companies have convinced regulators that it is. So, the lower the score, in many cases the higher the premium. Or, you could get turned down completely.
You can also have problems if you’ve filed claims under previous homeowner policies. It’s unfortunate that you pay for coverage, but can be penalized for using it, but it can happen. Some insurance buyers have even found that a record of a phone call inquiring about filing a claim, even if it never got filed, can be used to increase their future rates.
Most home purchase contracts have the buyer’s purchase of a policy effective the day of closing as a contingency. If the buyer is turned down for insurance, they can get out of the contract and have their earnest deposit refunded. That’s why it’s critical to immediately apply after a purchase contract is signed, as there are deadlines for exercising this right.
Extent of Homeowner Insurance Coverage
There are many variations in coverage, including full replacement. You should discuss your risk tolerance and coverage options with your insurance agent. The more coverage, the higher the premiums. If you choose to cover the home at full replacement cost, be sure that you understand how that’s computed, and if you need to have the value adjusted over time, or if it’s automatic with inflation adjustments.
Pay Attention to Insurer Requirements
Just because you’re issued a policy, don’t get complacent. Read any notices that come with it, particularly notices that come after the company sends out a photographer to shoot photos of the home. In one case, a letter was sent requiring some tree limbs to be trimmed away from the roof of the home just purchased. The buyer put it on their todo list, but moving in moved it out a couple of weeks. They received a cancellation notice. Only after some loud discussion with their agent did they get a few days to trim the limbs. Read all communications from your insurer carefully.
You shouldn’t be afraid to use the coverage you’re paying for, but try to find answers to questions elsewhere or anonymously before calling your agent. Let’s say that you have a pipe break, and water was all over the basement floor for part of a day before you got things fixed and cleaned up. If you wonder what you should do if you see mold later, you might want to read your policy or do research on the web before you call and ask your agent, who may note the call in their records.
Balance coverage with cost, and keep your insurance up to date. If you have a mortgage, you’re probably paying into escrow with each payment, and the lender is paying the premiums. Don’t get complacent though, as they’ve been known to drop the ball. If your policy is canceled for any length of time, the lender, even if it was their fault, will purchase very high cost temporary coverage and charge the cost to you.