New year, new home? When buying a home for the first time you may find yourself overwhelmed with the process. Ensuring that this home has everything on your need-list, making sure it is affordable, and of course, insuring it. If you are a first-time home buyer, home insurance will most likely be a first-time as well. In this blog, I am breaking down home insurance, what every new-home buyer should know upon purchasing home insurance along with some do’s and don’ts.
Something we see clients often get hung up on is Escrowing. What is it? How does it work? When buying a home, you will most likely have a lender and monthly mortgage payments. Escrowing is adding your monthly insurance bill on to that mortgage payment. You initially put money into a set escrow account and that is where the money for those monthly insurance payments is drawn. Meaning, you pay one set lumpsum into this escrow account at closing and the mortgagee takes care of the rest.
As I have discussed in previous blog posts, assuring that you have enough coverage is vital. If you are not properly insured, you could end up paying more than necessary. Here are the common coverages to be familiar with:
HO-2: Broad Form: The insurance policy that protects against perils listed on the policy.
HO-3: Broader Form: Protects against all perils unless excluded from the policy.
HO-5: Home insurance policy for newer homes, again, covering all perils except those specifically excluded.
HO-6: Policy coverage for condominiums. Covers personal property, liability, and improvements to the units. NOTE: This is solely insurance for the unit. The landlord/ association should hold insurance for the actual building.
HO-7: Insurance policy for mobile homes. Provides same amount of coverage as HO-3.
HO-8: Coverage for older, historic homes. It protects against perils listed on the policy. This level of coverage only covers actual cash value. Actual Cash Value (ACV): Cost of replacing a personal item based off its value at the time it is damaged.
If you are not sure whether you have the correct coverage, or even what coverage you are supposed to have feel free to reach out to us for more information.
When you receive your very first home insurance quote, there may be some terms on there that seem foreign. Here is a list of common terms you will often find on a home insurance quote along with their definition:
Premium: What you pay for your insurance. For home insurance it is usually an annual premium. Whereas auto policies can be written as 6 month or 12 months.
Deductible: Works as most deductibles do. It is the amount you initially pay out of pocket. The higher your deductible, the lower your annual premium will be.
Liability Coverage: Covers medical and legal bills in the event someone is injured on your property.
Loss of Use: This coverage pays for alternative living in the event your home becomes unlivable. This can get very pricy if you are not properly covered.
Personal Property: Covers items in your home such as clothing, furniture, and electronics. May also be listed as contents on the quote/ policy depending on the insurance carrier.
Replacement Cost: Pays for the full amount when replacing your dwelling or personal items. It is very important that this is amount is high enough.
NOTE: If you will refer to the policy coverages listed above, most standard policies do offer Replacement Cost. However, if you are writing an HO-8, your home but be covered by Actual Cash Value.
The reality of buying home insurance for the first time is that mistakes can be made. The best thing you can do is research and be mindful of the aspects that make up home insurance. The worst thing a new homeowner can be is underprepared and under insured. Unfortunately, some people end up learning the hard way. Instead of perfecting your insurance through trial and error, there are a few things you should and should not do when purchasing home insurance for the first time.
A couple of things that ARE recommended by Tidewater Mortgage Services, Inc. are getting comprehensive coverage and keeping record of your possessions. With comprehensive coverage, mortgage companies will often require that you have it. Although excluding comprehensive coverage may look less expensive, it most likely will end up costing you more in the event of damage to your home. Comprehensive coverage covers your possessions, your home, family, and injury.
Keeping record of your possessions does not mean making a list of every single dinky item in your home. Possessions you value most, or possessions that hold the most value are the ones you should have on record. When keeping a list, it is important to also note the worth of said items at the time of purchase. This method helps homeowners understand their level of insurance coverage and whether they are under-insured. It could save a lot of time, money, and stress in the event of a catastrophe.
Tidewater Mortgage Services, Inc. also suggests some actions that ARE NOT to be taken by new homeowners. Their main thing is that you do not have to bundle your insurance solely out of convenience. There are many benefits to bundling, discounts as well. However, every insurance carrier is different and a carrier that works best for your car insurance may not make the most since for your personal home insurance. Luckily, Scott Loveland Insurance can write policies with multiple carriers if it seems there is a better fit elsewhere. Let us shop around for you and get you the perfect insurance for you and your new home.
Purchasing a new home and insurance for the first time may be intimidating at first. We recommend that you do your research, try, and understand the ins and outs of your homeowner’s policy to ensure you are perfectly covered so that you and your family will always be protected. At Scott Loveland Insurance, we want to help you avoid unfortunate over spending and be fully covered.
If you have more questions regarding home insurance, please visit our website or refer to previous blogs at: https://www.scottlovelandinsurance.com/blog