What You Need to Know About Insurance When Buying or Selling a Home
Home insurance, also called hazard insurance or homeowners insurance, is a type of insurance that covers private homes. It combines various personal insurance protections, which can include: losses to one's home, its contents, loss of its use, or loss of other personal possessions of the homeowner, as well as liability insurance for accidents that may happen at the home or at the hands of the homeowner within the policy's territory.
A dwelling policy (DP) is similar to a home insurance policy, but is used for residences which do not qualify under various circumstances, such as vacancy/non-occupancy, seasonal/secondary residence, or age.
You should refer to the actual policy for specifics to what will and what will not be paid in the case of various events. Basic policies protect you and your house against losses from fire, theft, liability, vandalism, water damage, wind damage, tornados and loss of use. Traditionally, claims due to termites, floods, earthquakes or war (typically including a nuclear explosion from any source), are excluded; however special insurance can be purchased for these circumstances.
There are several types of homeowner's policies available. Understanding the coverage that each type offers will help you select the right policy for your needs. The following three policy types are the most common coverages available:
- Standard Policy requires coverage for at least 80% of the value of your home, excluding land and the foundation. It will usually insure your personal property at actual cash value.
- Broad-From Policy is more inclusive than the standard policy and covers additional named perils such as glass breakage, smoke damage, etc.
- All-Risk Policy covers even more than the standard and broad-form policies. An example of a covered risk might be damage caused to your roof from ice build-up in the gutters.
Some of these policies offer optional guaranteed replacement cost coverage on your home and its contents. Replacement cost coverage will pay to rebuild your home and replace its contents with no depreciation coming into play.
The premium of a home insurance policy varies and typically depends on the cost to replace the property (including contents and personal possessions), and will also factor in the likelihood of the home being damaged or destroyed. Deductibles also vary and will affect the annual price of the policy you choose.
It is important to understand that the replacement value of your home is based on your insurance company's estimate of the cost to rebuild your home on your property. It is not based on the purchase or appraised value of the home. Most policies have a built-in annual increase of replacement cost coverage.
When purchasing home insurance, there are ways of lowering your premium. Most insurance companies offer discounts for smoke alarms, fire extinguishers, dead bolt locks, and whole-house alarm systems.
If your home is fairly new, or if you elect to insure your automobiles with the same company, you are likely to receive an additional discount on your premium.
Again, you can reduce your premium by electing to have a high deductible, but make sure to keep the number realistic should you need to make a claim.
Why Should I Consider Home Insurance?
Insurance is the type of service you buy hoping that you will never have to use it. Unfortunately, in the world we live in, there is always the potential for the unexpected. Wherever you live in the world, there is the risk of natural disaster, accident, and sadly theft. Because all of these factors are out of your control, you will want to protect yourself from loss with home insurance.
Discuss your unique needs and concerns with your insurance agent before purchasing a policy, or whenever your needs may change. The right policy can give you a sense of security in knowing that you are adequately protected. If you do not have a trusted insurance agent, your REALTOR® can refer you to one.
This information is meant as a guide. Although deemed reliable, information may not be accurate for your specific market or property type. Please consult a REALTOR® professional or insurance agent for more information on home insurance policies.