Homeowners Insurance Tips for Home Buyers
Understanding Homeowners Insurance Options and Steps is Important
So you are looking at buying a home? Too many forget that when purchasing a house and a mortgage is involved, that it is so important to discuss homeowners insurance options with a knowledgeable insurance agent. This should be done very early in the process and there is a lot more to discuss than just “What’s my payment?”. So let’s discuss some important topics about insurance.
Homeowners Insurance Policy Compared to a Dwelling Policy
Many people not involved in the insurance business are not sure of the difference between these two policies, but when buying it is important to know.
Homeowners Policy: A homeowners insurance policy is placed on a home that you own, live in as your primary residence, and the property is in good condition and meets certain requirements. If it’s an old home such as pre-1970’s, it would need to have been re-wired and re-plumbed as well as it must have a breaker box rather than the old fuse box.
Dwelling Policy: A dwelling policy can be on a home that you own AND live in but the home may be older and without modern updates such as updated wiring with a breaker box and modern plumbing. Sometimes a buyer may buy a home that requires a dwelling policy and after making improvements, will switch to a homeowner’s policy to get better coverage. In most cases dwelling policies are written on homes that someone owns BUT they do not live in the home, which in most cases are tenant occupied homes.
Important Rider available for Homeowners Insurance Policies
Water Back Up and Sump Overflow is an inexpensive rider available on Homeowner policies. If you had a sewage back up into your home without this rider, the insurance would not pay for clean up.
Important Rider available for Rental Dwelling Policies
If you are an owner of a rental property, then a very important rider for you to have on your dwelling policy is the Fair Rental Value rider. If the insured rents a home to a tenant and that home becomes uninhabitable due to damage from a covered peril, Fair Rental Value coverage reimburses the insured for the lost rent. Any expenses that do NOT continue while the home (or that part of a home) is uninhabitable (e.g., electricity) are then subtracted from the fair rental value. The payment will be for the least amount of time necessary to repair or replace that home (or that part of a home) rented or held for rental to others.
Replacement VS Actual Cash Value
If you own a rental property that was built after 1970 and is in good condition OR you own a rental property that was built pre-1970 but has been re-wired and re-plumbed and is in good condition then you want to make sure you have replacement coverage on your home. Replacement means the insurance company does not depreciate. Actual cash value means the insurance company DOES depreciate.
Here is how a Claim Works for Replacement VS Actual Cash Value:
Replacement Claim: Once you claim and the adjuster works up the claim, the adjuster will first cut you a check for Actual Cash Value of your loss. However, once you replace these items with something similar and turn your receipts into the adjuster, then the adjuster will cut you a check for the remaining monies it took for you to replace your loss, thus putting you back in a similar position as before your loss.
Actual Cash Value Claim: Works the same way EXCEPT once the adjuster cuts you a check for Actual Cash Value of your loss then the claim is closed. You replace your loss as well as you can but the insurance company doesn’t cut you a check for the difference in between the actual cash value and what it cost you to replace your loss.
Tips to Save Money on Homeowners Insurance
Many people get the warm and fuzzies from having a low deductible on the homeowners insurance policy. However the warm and fuzzies come at a price. It can be beneficial to consider a higher deductible such as $2500. The difference between a $1000 deductible and a $2500 deductible can be as much as $300 a year in some cases, so by the time you have a claim you may have saved enough money over the years to more than offset the amount of the deductible. Make sure that you thoroughly discuss the attributes of the house because some things such as a security system, recent upgrades, distance to a fire hydrant can make a difference in your premium. Also if you have multiple policies such as a car, boat, motorcycle, or others, it could give you a discount on your homeowner’s policy. Many people often purchase a homeowners policy and never look at it again. It is very important to review your policy with your agent every two or three years in order to see if changes need to be made. Homeowners policies come with automatic inflation protection so your coverage amount increases each year at renewal. Sometimes depending on the market your coverage may even need to be adjusted back down.
How to Prepare for Closing
When you are in the process of purchasing a home that is being financed one of the requirements is giving the lender an Insurance binder as evidence that the home is insured effective as of the closing date. A good idea in this situation is to go ahead and put your lender and your insurance agent in contact early on in the process so the Agent is aware of the closing date, Mortgagee Clauses, coverage required, and the loan number. Failure in securing a homeowners insurance binder will delay your closing so if your lender and Agent are connected early in the game this process normally goes much smoother. Check out 10 Important
The details in this article were provided by Robbie Norris with Farm Bureau Insurance, 109 S. Elliott Rd, Chapel Hill, NC 27514. Click here to learn more about Robbie and his agency.