Homeowner Insurance Basics
Homeowners insurance is protection from fire, theft, smoke, most weather events, a tree falling on your roof during a storm, etc. Most standard policies also cover your possessions.
But in the event a burglar breaks into your home and steals your $200,000 watch collection, this will be inadequate. You would have to secure separate insurance for high value ticket items.
Homeowner insurance for a $300,000 home is about $2300 according to the national average. This will greatly differ per state, zip code, amount of your deductible, and how much coverage you want.
Your insurance agent will be asking specifics about your home like square footage, zip code, attached or detached garage, year it was built, etc.
Speak to your chosen insurance agent about dwelling and liability coverage and what best suits your needs.
Homeowner’s insurance will cover a burst pipe creating water damage in the home, but will not cover a body of water that normally covers dry land.
Flood insurance is another common mistake that homeowners think their insurance covers. It does not. First off, check if your home is in a flood zone. If it is, you will need to buy flood insurance separately from your standard homeowner insurance.
Flood insurance takes 30 days to kick in. So, when you are hearing of a big storm coming next week and decide to buy flood insurance, you better hope and pray that there is no damage done to your house before the insurance kicks in.
Flood insurance can be purchased from the National Flood Insurance Program, but only through an agent or insurer like State farm, Allstate and the likes.
Homes and businesses with mortgages from government backed lenders that are in high-risk flood zones are required to have flood insurance before you can close on the property.
This is another insurance that is not covered by your homeowner’s insurance.
You may want to think about buying earthquake insurance if your home is near an active fault line like in California. In a place like CA where properties cost more and the annual coverage is $500,000, this insurance can cost between $1200-$2750 a year.
This type of insurance pays for the structural damage, replacement of your personal property and temporary living expenses. If you get hit by an earthquake, you are still on the hook for the mortgage even as you are rebuilding.
There are 16 states listed at high risk for earthquakes.
Title insurance protects lenders and home buyers from financial loss due to defects or “clouds” in a title when transferring a property. It involves a record of property searches, liens, history of transfers to ensure there is a clean chain of custody.
You as a buyer are required to purchase title insurance to protect the lender. In short, it’s insurance that the title is clean and unencumbered to be passed on to you the buyer.
There are escrow and title companies that specialize in this, especially out West where your closing is usually facilitated, completed and arranged through their offices. You never even get to meet the sellers or the other party to the transaction.
Both title insurance and homeowner insurance are two necessary insurances that a buyer will have to purchase as part of the closing costs.
Both with completely different functions but the same endgame. It protects you and the lender’s interests, and provides financial relief in the event of a calamity.