Homeowner’s Insurance Basics
Homeowners insurance exists because a home is a huge investment, often one of the largest purchases many people make in their lifetimes. Naturally, people want to protect the value of their precious property. Homeowners insurance is a contract between a homeowner and an insurance company. As long as the owner pays the required premiums and meets the other policy requirements, the insurance company guarantees to reimburse the owner for any losses incurred due to natural disasters or human-caused damage.
What Does It Cover?
A basic homeowner’s insurance policy protects the owner against any property damage that results from things like fire, lightning, wind or hail storms. It will also provide for motel and food costs if you are forced to leave your home while such damages are repaired.
A typical policy, however, does not cover flood or earthquake damage. Because these issues are usually specific to certain regions of the country and can cause extreme damage, these can be purchased as separate policies. If you live in a flood zone or near an earthquake fault line you may be required by your mortgage company to carry these protections.
A basic policy will also cover homeowners against loss from theft or vandalism as well as reimbursement for personal property destroyed in natural disasters. It will also provide for something that many people may not normally associate with home protection – liability coverage for lawsuits brought against the owner by people who were injured on the property. This includes the cost of legal defense up to the allowed policy limit. Additionally, most policies will have a provision that will cover the basic medical expenses for the parties.
Is It Required?
Homeowners insurance is almost universally required by mortgage companies with the purchase of a home. This is because the investment is almost as big for them as it is for you. They want to make sure the property is protected from major damages so that if you are ever unable to keep up with your payments, the lender can then reclaim ownership and be able to sell it fairly easily. And even if you own your home outright, a good insurance policy is still the best way to protect the value of your home in the face of the unexpected
How Much Does Homeowners Insurance Cost?
Homebuyers are required in almost every instance to buy a homeowners insurance policy for their desired piece of real estate. This protects the owner and the mortgage lender against losses caused by damage to the property, either from natural disasters or from human-made destruction. One of the main concerns of many homebuyers, however, is how much the insurance will cost. While there is no standard answer, understanding the factors that determine the price can help give buyers a good estimate of their premiums.
The Size and Type of Home
The price of your premium is partially determined by things like the amount of the homes’ square footage, age and type of building materials used in the structure. It is also important to note whether your home has been recently updated or renovated as well as if there have been any additions made to it. All of these aspects will help the insurance company figure out how much it would cost to rebuild your house in case of a disaster. The more expensive the rebuilding costs the more expensive your insurance policy will be.
Fire Protection Accessibility
The closer your home is to a fire hydrant and a local fire station, the more likely your home is to be saved should a fire occur. This means less damage to repair and your insurance costs will be lower if you live close to these fire protecting features.
Regional Disaster Characteristics
If your home is in an area that is particularly prone to hurricanes or tornadoes, your homeowners insurance costs will be higher to account for this increased risk. Remember that earthquake and flood protection are not included in a standard policy. If you need to purchase either of these, you will obviously have to pay higher insurance premiums.
Local Crime Statistics
Since part of a homeowners insurance policy covers the cost of damage or loss of personal property due to theft or vandalism, the local crime rates will be factored into your premium price. A home located in a crime-ridden urban area will certainly mean higher costs than one situated in a quiet, suburban neighborhood.
There are many nice insurance features that are not necessarily included in a standard policy. These include things like guaranteed replacement cost coverage, inflation guard clauses, and building-to-code endorsements. If you plan on adding any extras to your policy, you should expect to pay higher premiums.
Homeowners Insurance and Your Credit Score
Homeowners insurance is a requirement for almost any home purchase these days. Mortgage lenders want to protect their investment as much as the homebuyer does. And just as lenders determine your loan interest rate and terms largely on your credit score, insurance companies also use your score to determine how much to charge you for premiums.
What is a Credit Score?
A credit score is a measurement of your ability to responsibly deal with borrowed money. The most commonly used type of score is the FICO or Fair Isaac and Company score. This is based on five factors: your history of timely or untimely payments, the total of your current credit balances, how long you have had credit accounts, if you have opened any new credit accounts recently, and what types of credit you use.
How do Insurance Companies Use My Score?
It’s all about risk management. Homeowner’s insurance companies are in the business of risk. They try to estimate how many claims their customers will file each year on average and then charge premiums that are sufficient to cover at least that amount of liability. Studies have shown however, that those with lower credit scores (typically those who are less financially responsible) are much more likely to file an insurance claim. These are riskier clients to insure. So insurance companies develop their own rating numbers for customers based on their credit scores and those with high scores are offered the best rates and terms while those with lower scores can expect to pay more.
How do I Get the Best Rates and Terms on My Insurance?
Start by asking the insurance company what kind of scoring system they use. Ask if you qualify for the best rates and terms and if not, find out what you can do to qualify. Typically, anything that improves your credit score will also improve your insurance costs. This includes things like making all your payments on time and lowering or maintaining low balances on your credit cards.
And even as you work to better your score, try asking several different insurers for rate quotes. Each company will use slightly different factors to determine your price, so shopping around can insure that you find the best available price no matter what your credit score.
Homeowners Insurance for Condos
Buying homeowners insurance for a condominium is slightly different than buying a policy for a single-family home. This is because condos have building associations that insure the shared features of the complex. Before you purchase your insurance coverage, it is important to know what your responsibilities are.
What the Association Covers
While each condo association insurance policy will be slightly different, in general, you can expect it to cover any damages to the structure of your building, the common areas, and shared amenities like the water and gas pipes. The policy should also provide liability and medical fee coverage in case one of your guests is injured the condo common areas.
What You Need to Insure
You will be responsible for insuring everything inside the walls of your home. This includes any fixtures like cabinets and appliances. Additionally, a standard condo homeowners insurance policy will provide for protection of your personal property against damage or theft. If you have any special collections of jewelry or other extremely valuable possessions, you may need to take out a supplemental policy.
As a condo owner, you will be responsible for getting Additional Living Expenses coverage. In the case of major damage to your home, your policy would then pay for the expenses associated with living elsewhere while your place is repaired. Primarily this means things like hotel and food charges.
Your policy should also include liability insurance for any injuries incurred by others while inside your condo. This would pay for the legal fees for any resulting lawsuits as well as compensation for the injured guest. Most policies will also include a guest medical protection clause that will provide for medical treatment for any such injured visitors.
Standard homeowners insurance policies will protect your condo against damages due to fire, smoke, lightning, wind and hailstorms, explosion, and falling objects, but they do not cover flood or earthquake destruction. If you like live in an area affected by these issues, you will need additional policies.
Keeping Your Costs Down
While you are still responsible for providing adequate insurance coverage, there are plenty of ways to minimize the cost of your premiums. One way to do this is by making your apartment safer with things like fire and smoke detectors, as well as home security systems. You can also choose a higher deductible in exchange for significant premium savings. Plus, anything you do to improve your credit score will help make your insurance costs that much more affordable.