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Homeowner Insurance Basics
There is a lot to think about when looking for homeowners insurance.
When I first learned about home insurance I wanted to know the basics and I had a lot of questions: What is home owners insurance? and do I have to get it right away? What does homeowner insurance cover? How much does it cost?
Do you need homeowner insurance?
If you buy a home you need homeowner insurance. Most lenders require the homeowner to find home insurance prior to lending. The reasoning here is pretty clear: if the borrower/homebuyer defaults on the loan the only assurance the bank has of getting their money back is by way of the home. If the home burns down and it is not insured the bank could be left with much less than required to fulfill the loan. The banks are not going to let this happen so homeowner insurance is likely required.
The minimum amount of coverage required is determined by the lender who generally would like 70-95% coverage of the cost of the loan. However the amount you want to ensure your home is up to you. Often times the minimum amount of insurance is procured for the purchase of the home and the loan transaction and then the homeowner can later shop around for a different insurance policy.
Homeowner insurance coverage.
When you buy a house you are buying the house and the land the house sits on. Homeowner insurance just covers the dwelling(s) on the land. Separate structures like detached garages and barns are also included in homeowner insurance and will add to the cost of the insurance policy. Personal property is insured on a typical homeowner insurance policy and it covers theft and loss of all your stuff.
Homeowner insurance should also cover personal liability. This means if someone hurts themselves badly at your house and you were liable the insurance company covers related expenses. Usually a policy has a "guest medical" amount also that can be used towards medical bills for someone who is hurt on your land whether you were liable or not. This is a bit of an appeasment tactic by the insurance companies to discourage lawsuits. By adding this feature insurance companies found that $1,000 towards medical bills can save hundreds of thousands in a liability suit payout.
How much does homeowner insurance cost?
The cost of homeowner insurance can vary greatly. But it is very reasonable. Here is an example: Homebuyer purchases a home with the sale price of $280,000. The homebuyer has $30,000 to put down and secures a loan for the remainder of $250,000. The lender requires homeowner insurance coverage of at least 85% of the loan. The insurance policy has dwelling coverage of $220,000 which includes $1,000 for guest medical, $300,000 in liability coverage and $200,000 for personal property. This policy costs homeowner $1,100 a year.
Now that you are armed with some knowledge about homeowner insurance go and shop around. Rates will not fluctuate much so comparison pricing is possible. Check with your car insurer as often times a bundled package of car and home insurance can lower the overall cost of the policy. Also try and find an insurance agent who is unaffiliated to any one insurance company and can shop around for the best policy prices. Ultimately be sure that your insurer is reputable.
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