Once you’re approved for a mortgage and are headed to closing, you’ll need to provide proof of homeowners insurance. Most mortgage companies will not close until homebuyers provide appropriate verification of coverage.
For first-time buyers, understanding the varying levels of coverage can be stressful, especially if the closing is in the near future. Below are a few tips for choosing the right type of homeowners coverage for your new home.
The cost of your policy is based on many variables. In addition to the add-ons you choose, where you live, how much coverage you want and even the size of your home can affect the cost. Some homeowners may not want personal liability coverage or flood coverage whereas others want to cover everything inside of their home.
Similar to car insurance, homeowners insurance has a lot of variables, and based off these variables, you will have the option of several different plans. The value and age of your home, your home’s various amenities, your home’s location, and the types and breeds of pets in your home all affect your rates. Even your marital status can affect your policy. After all these variables are taken into effect, you’ll be able to look at your options and decide on a policy.
Some are very basic and only offer baseline coverage such as personal belongings coverage and liability. Other plans offer basic coverages such as dwelling coverage but also offer homeowners a variety of add-ons such as flood coverage, medical payment coverage and protection against water and sewer damage. Depending on where you live, you need to weight all of the options and determine what you really need and the likelihood of needing additional riders.
It’s never a good idea to wait until the last minute to purchase coverage. A good rule of thumb is to start shopping for homeowners at least 30 days prior to closing. Not having coverage in place can delay closing, so it’s important to give yourself enough time shop around and make an informed decision.
Knowing What’s Covered
A lot of people are shocked to find out that the coverage they chose doesn’t cover everything they thought it did. For instance, if your home is flooded from an outside source, such as broken water main, your insurance may not cover the damage.
In addition, in certain situations where household maintenance could have prevented the problem, like normal wear and tear or leaky roofs, homeowners may find themselves footing the bill rather than the insurance company. Be aware of what your policy covers so that when problems occur, you’re not surprised by a nasty bill.
Market Value versus Replacement Value
Another very common mistake people make is confusing replacement value with market value. When choosing a homeowners policy, you need to insure what you think it will cost to rebuild your home, not the market value.
Most policies will cover up to 125 percent for rebuilding, so make sure you’re not overpaying or underpaying. Not having enough coverage can be the difference between having your home rebuilt under your homeowners insurance policy or having to cover the expense yourself.
Your homeowners insurance needs to be built from the bottom up. Your needs may be far different than your neighbors, so make sure to weight the options and enlist the help of a qualified insurance agent and appraiser if necessary.
By Anita Ginsburg
who is a freelance writer and residing in Denver, CO. She studied at Colorado State University, and now writes articles about health, business, family and finance. A mother of two, she enjoys traveling with her family whenever she isn’t writing. When looking for homeowners insurance, she recommends doing your research and working with a professional to find the best rates.