Home insurance on your new home is required to approve financing for your home. Home insurance is also often referred to as homeowner’s insurance or hazard insurance, and these terms are interchangeable.
You’ll need to choose an insurance provider and agree to the coverage, deductibles, and cost for them to finalize the policy. You will not need to pay for the initial year’s premium upfront since it’s included in the closing costs you’ll pay at settlement to purchase the property. Most homeowners escrow tax and insurance and so future insurance payments will be disbursed by your escrow account annually, so you will not need to pay future insurance bills directly. 1/12th of your insurance bill is a part of your monthly mortgage payment (Learn more about escrow accounts here: https://alexjaffe.com/what-is-escrow/)
There are three primary components of home insurance:
1. Dwelling Coverage: covers the cost to rebuild or repair your home’s physical structure after incidents such as a fire
- For a single-family house, replacement cost coverage is necessary to be able to rebuild the whole property in case of a disaster
- For a condominium/cooperative, we require the dwelling coverage to be at least 20% of the value of the property. It will cover your unit’s interior and any improvements that you make. (Please note: Some condominiums/cooperatives have a master insurance policy that also covers the interior betterments & improvements of your unit. In this case, we’ll waive our requirement for you to have a homeowner’s policy since the master policy already provides the needed coverage. This coverage is uncommon, as most master insurance policies do not cover the betterments and improvements)
2. Personal property Coverage: covers the cost to replace your personal belongings if their damaged in a fire, natural disaster or even stolen. The amount of coverage is up to you, and you may determine the overall value of the items inside your home.
3. Liability Coverage: protects you financially against lawsuits for injury or property damage by you. This also covers the court costs incurred and any damages awarded. Typically, you should have enough liability coverage to protect your assets. Some people additionally choose to purchase a separate umbrella insurance policy.
It’s also important to note that standard home insurance does not cover damage caused by normal wear and tear, earthquakes, wind/hurricane, or floods. You may consider adding flood or additional insurance coverage to protect against these disasters.
Talk to your insurer to discuss amounts of coverage, premiums, and other insurance coverage they have available. If you need a recommendation for an insurance provider, please reach out to me and I’d be happy to share their information.
Questions? 240-479-7658 or firstname.lastname@example.org
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