Trying to find the right homeowners insurance policy? This post will walk you through some key questions and considerations to help you get the best coverage for your situation.
Getting your offer accepted is a huge step towards becoming a homeowner – but there's still more to do before you can close on your home:
- First, as part of your mortgage application, you'll need to provide a homeowners insurance quote so that your lender can make sure you have sufficient coverage, and incorporate your monthly insurance payment into your debt-to-income ratio calculation.
- Second, before your loan is finalized, you'll need to activate that homeowners insurance policy by paying for your first year in advance directly to the carrier (or put that money into escrow to be paid at closing).
1. What do I want covered in case of a disaster?
Your homeowners policy will cover the structure and fixtures of your home, the contents inside the home, and any structures on the property like a detached garage or shed. What are the items you absolutely want to replace in the event of a natural disaster or burglary? The home itself is probably at the top of your list. But what about your wedding bands and engagement rings? Or that shed that doubles as an office? Any collections hidden away in the attic? Any items that are hard to replace or of high value should probably be covered individually. You’ll want a separate Valuable Items policy that covers each item or collection individually and replaces those items for their full value.
|Questions? Schedule a call with a Cover Concierge today!|
2. What type of home am I buying?
Is it a single family home or is it attached to other units, like a townhouse? Is it a condo? A co-cop? The type of home you have will determine the type of policy you need. Keep in mind that if your new home has a homeowners association (HOA), the association may have its own insurance policy that covers your home and/or personal property. Your HOA should have a “master” policy that helps you determine what is and isn’t covered already.
3. Do I have enough coverage?
You want to make sure you have a clear understanding of exactly how much is covered when it comes to your home, personal items, and even those structures not attached to the house, like the detached garage or shed in the backyard. It may be tempting to cut costs by not insuring your home to its full value, but know that under-insuring your home means you may not get a full payout in the case of loss or damage.
4. Am I meeting the coinsurance requirement?
This goes hand in hand with not under-insuring your home. Insurance policies have a coinsurance requirement, which means you must insure a certain percentage of the replacement cost of your home or there will be a monetary penalty at the time of a claim payout. Translation: you may not get all the money you expected.
5. Do my deductible options make sense for my financial situation?
Your deductible amount is how much you’ll be required to pay out of pocket before your insurance coverage kicks in. If you think you’ll be in a position to be able to pay a little more out of pocket at the time of a loss, you can consider increasing your deductible, which should lower your monthly premium payment.
6. How will my property be valued if I need to make a claim?
Some policies will pay you the full amount it costs to replace your property (also known as “replacement cost,” or “RC.”). However, some policies may only pay you what the insurance company thinks the value of your items is at the time of the loss. The means if they think your property has depreciated in value, such as an older laptop model, they’ll only pay you for what your property is worth today (also known as “actual cash value” or “AVC.”). If you have a lot of older items, you’ll want to check your loss settlement agreement to make sure you know how much you’ll get for your possessions – it may not be enough to buy new replacements.
7. Do I have another option to compare?
Always, always, always get a second quote! Now that you know what to look for, you can see what a few different carriers offer. And there’s nothing worse than leaving money on the table - especially when you’re already dishing out so much for your mortgage costs. Getting another quote may mean saving some moolah! But all of the other considerations are equally important when comparing quotes.
8. Will I pay the insurance carrier now or out of escrow at closing?
In most cases, you'll be required to pay for your first year of coverage in advance. People often choose to pay that out of their escrow account when they close on their home (along with the down payment and other closing costs). Alternately, you can choose to pay your insurance provider directly, prior to closing. Either way, you'll need to let both your insurance provider and lender know what you intend to do, and make sure they can accommodate your preference.
Make sure the carrier will allow you to pay out of escrow if that’s what you want to do. It will help avoid any last minute setbacks at your mortgage closing.
9. How does the pricing work?
Unfortunately, there isn’t one standard calculation for the way in which premiums are calculated. Each insurance carrier has their own rating (pricing) system. Factors typically include the location of your home, the length of your policy term, any additional coverages you want to add on, and in some instances your personal credit information. These rates are also filed with the state, so it’s difficult to negotiate pricing. That’s why the best way to ensure you’re getting the best price possible is to shop around and get quotes from at least two different carriers.
10. Who can I go to for homeowners insurance questions?
Make you sure you have a trusted advisor, like your insurance agent, that can answer any questions you may have about your insurance needs.
How Better Cover can help you with home insurance
We know it can be stressful to shop for homeowners insurance and get a mortgage at the same time. We’re here to help make the process as easy as possible by providing you with competitive quotes from a variety of carriers, like Travelers, Hippo, and Progressive. Then, we can work with both the carrier and your loan team to reduce and streamline the potential back and forth between you, your loan team, and your policy provider. We can help reduce the amount of time it takes for the whole process from quote to policy – and help you close on your new home as smoothly and quickly as possible.