Step 9: Get Homeowners Insurance
Homeowners insurance is required by the lender in the amount of the mortgage to protect you and the lender against hazards like fire or storms. Most homeowners, however, opt for a more comprehensive policy that also offers liability protection. Some may even purchase flood insurance if their home is located in a flood plain.
Property protection covers your property- home, other structures or possessions- if they are lost or damaged due to perils such as lightning, fire or wind (All polices will tell you which perils are covered). Most policies are divided into 4 main sections:
- Coverage A: The home (dwelling)
- Coverage B: Detached Structures
- Coverage C: Contents (personal property)
- Coverage D: Additional living expenses
Your insurance agent will help you decide on an amount of insurance to purchase to cover the house.
In some cases, the insurance company requires that you purchase enough insurance (an amount equal to at least 80 percent of the value of your property) to get replacement cost coverage. The insurance value is different from the appraised value of the house; it is what it would cost to repair or replace a property and not what the market thinks.
Liability insurance is called third-party coverage since it pays other people, not you. A typical homeowner’s policy provides $100,000 of liability coverage, although the amount can be increased or decreased. This coverage applies if you, any relative or dependent person in your care who lives in your home, or your domestic pets become legally liable for injuring someone else or damaging their property.
In addition to liability insurance, your policy will include medical payment coverage that pays the medical costs of those hurt on your property regardless of liability. It is usually limited to $1,000 to $10,000.
Cost of Insurance
Factors that affect the cost of your insurance include:
- Geographic loss experience – if an insurance company has lost money in your location
- Type of construction
- Type of fire protection & proximity – professional vs. volunteer fire department
- House size & condition
- Type of contents
- Your credit score
- Type of policy
- Size of deductible
- The company you choose – shop around or bundle with auto insurance to save