Homeowners Insurance: What You Need to Know

by Hello Blue
January 30, 2020
Reading Time: 3 minutes

Mortgage lenders require property owners to have comprehensive homeowners insurance. It protects their investment in you and your home. Home insurance is a wise investment for most people. It aids in reducing risks when sudden and unexpected problems occur. For many people buying a home, it is important to understand what home insurance is and why it works. The type of protection it offers is comprehensive and highly important for anyone that owns a home.

How Much Does Homeowners Insurance Cost?

It’s not easy to provide a very specific number here. The problem is that the value of home insurance and the cost of it go hand in hand. You can expect to pay more if your home is valued at a higher dollar amount. At the same time, you will pay more for this coverage if it gives you more protections. A very rough estimate of what you may pay per month is $35 per month for every $100,000 of value. However, this is not something you should guess at. You are able to contact a home insurance company and request a quote for coverage. This gives you clear information on what you can expect to pay.

What You Need at Closing

When you are ready to close on the purchase of your home, your closing agent will tell you that you need to have proof of insurance. This is a document from the insurance company that shows coverage for the property, starting on the take you take ownership. It should include the type of insurance you have, the amount of coverage, and the policy’s start and end date.

Once this is in place, you can set up your home insurance payment to be paid along with your monthly home mortgage payment. The funds are collected in an escrow account for you, and, when due, they are paid out to your insurance company at that time. Lenders need to know these funds are going to be paid with good reliability as it impacts their level of protection on the home.

How Do You Choose an Insurance Company?

There are many home insurance companies available. You may want to choose one that is local to you if you want to get to know your agent well. You may be able to use your existing car insurance company and bundle your home and auto together. This could help you to reduce your costs. Or, you can choose any company out there.

However, in all cases, you should talk to a few different companies to learn what they can offer to you. They should be able to give you a free, no-obligation quote for the coverage you need. This allows you to determine what you can expect to pay. Be sure to ask for all the available discounts available to you, too.

How Much Home Insurance Do You Need?

The cost of home insurance is just one factor. You also need to make sure the amount of home insurance you purchase is enough to protect this big investment. Your agent should help you to determine this figure. Most of the time, your mortgage lender expects full coverage. That is, the mortgage lender will require that the value of your policy is at least as much as what you owe to them – the value of your mortgage.

However, that’s rarely enough. Consider what would happen if your home had a significant figure and had to be knocked down and rebuild. The current market value of your home is less than what it actually costs to build that home again. For that reason, you want to work closely with your home insurance company to determine the right value – based on the cost to rebuild your home if it is damaged and needs to be replaced.

Don’t Forget Your Assets

Your home is one component of your home insurance. You also need to purchase enough contents insurance to cover the value of what you own and store in the home. Contents insurance is typically about 10 percent of the value of your home insurance policy – but this is not always enough. It is best to work with your insurance company to ensure your coverage actually matches your needs.

If you have high valued belongings, such as antiques or collectibles, this may increase how much coverage you need. If you have your home business at your home, you need to consider that as well.

Protecting from Risks

Home insurance policies also provide liability insurance. That means if someone is hurt at your home and sues you, the policy helps to cover the losses you have to pay. Keep in mind that your dog could bite a neighbor, or someone can slip off a step. These are accidents that cannot be avoided.

Home insurance policies do have limits. Most do not cover flooding, earthquakes, and wildfires. However, you can purchase coverage to mitigate these risks, too. That is also an investment you want to talk to your insurance company about before you choose a policy.

Home insurance is one of the most valuable investments you can make in protecting your home. There is no way to know what types of risks can occur from fires to hailstorms, but having a comprehensive homeowner’s insurance policy can alleviate many of the risks you have. It can also help to ensure your investment is protected long term.