7 Home Insurance Tips for the First-Time Home Buyer
Buying your first home is one of the biggest financial steps you’ll ever take. Becoming a homeowner is a great way to build wealth and it allows you to set down roots, but it also brings on new financial responsibilities.
One of the most important responsibilities for a new homeowner is to make sure your home is properly insured. Unfortunately, this can be complicated. If only it were simple! When you’re considering homeowners insurance, you want to get the right coverage from the ideal provider and at the right price. However, figuring this out can be overwhelming. To help you get the coverage you need without busting your budget, here are a few key tips that you need to follow.
Table of Contents:
1. Don’t Wait to Buy a Policy
More than likely, the bank giving you a mortgage will require proof of insurance before you can close on your loan. This means that you may need to have an insurance policy in place by your closing date, which is when you sign all the paperwork and the home becomes yours.
It takes time to shop around for a policy and obtain the necessary coverage. If you wait until the last minute, you could end up scrambling to get insured and provide the proof your bank needs to close on your loan. Don’t put yourself in this position. Start shopping for coverage as soon as you have an accepted offer on the home you’re buying.
2. Shop Around for an Insurance Provider
Another common error is assuming that all insurers are the same. There are actually big differences in terms of cost, coverage limits and customer service. You should shop carefully among different insurance providers to find the best deal.
There are small and large insurers, as well as national and regional insurers. There’s no one right insurer that’s right for everyone, so be sure to research all your options. And, you don’t necessarily want to shop based on price alone. The cheapest policy may seem ideal, but it may have coverage exclusions, or the insurer may have poorly rated customer service.
Check with the state insurance commissioner to find out if a company you’re considering has had complaints and review the companies’ Better Business Bureau ratings.
By taking the time to compare policies, prices and insurers, you can get the right coverage so you don’t pay more than necessary, and you can get the protection you need.
Let’s discuss a few of the considerations when buying a home and hiring the agent who’s up to the task. We want you to be successful in your endeavor.
3. Look into Discounts for Bundled Coverage
One way you may be able to save is by bundling multiple policies with the same insurer. For example, some home insurance companies offer discounts if you buy both home and auto insurance from them.
Ask your current car insurance provider if bundled discounts are available. You can also compare prices on both home and auto coverage when shopping around among different insurers. If you have additional policies, such as insurance for a business you run, see if you can bundle them too in order to get the very best deal on all your coverage.
4. Get All the Coverage You Need to Protect Yourself
When you buy insurance for your home, you’re purchasing a policy to protect what’s likely to be your most valuable asset. It’s imperative you have sufficient coverage in case of disaster. That means you need to understand how coverage works and get a policy that can truly protect you.
Homeowners insurance provides 2 types of coverage: property damage coverage and liability protection:
o Property damage coverage pays for repair or replacement of your home or the items within it in the event of a disaster.
o Liability coverage pays for lawsuits against you if you’re sued because someone is injured in your home, such as if s/he is bitten by your dog or falls down your stairs.
You want to have property damage for the structure itself as well contents. After all, you probably can’t afford to replace every piece of furniture in your home if they are lost in a fire or robbery.
When you buy your property damage coverage, you may also have a choice between market value coverage or replacement coverage.
• Market value would pay you what your possessions and home were worth at the time they were lost.
• Replacement coverage will pay what it costs to rebuild your house or to replace your possessions.
It’s usually best to have replacement coverage because the market value of your home and property may be well below what it would actually cost you to restore your possessions.
Finally, make sure you understand policy exclusions. For example, many standard homeowner insurance policies won’t pay for damage from a flood. So, if you’re in a flood zone and want your home to be insured against flood damage, you’d need to have a separate flood insurance policy.
5. Improve Your Credit Before Shopping for a Policy
Your credit score can impact how much you will pay for homeowner insurance. You can pay a higher premium if your credit score is low, so try to improve your score before buying a policy. Improving your credit score can also help you to get a better rate on your mortgage and more favorable loan terms.
You can improve your credit score by paying down existing debt so you use less of your available credit and develop a positive payment history. If a late payment is reducing your score, you could potentially improve it by calling your credit issuer or sending a goodwill letter asking them to remove that late payment from your record. They will usually do this for you if you’ve since proven you can consistently pay on time—or if it was a one-time occurrence.
It can take time to improve your credit score, so start working on building credit early if want to buy a home.
In this article, we’ll discuss your credit report and credit score and the basics of getting them to work for you. Let’s get started.
6. Don’t Ever Let Your Coverage Lapse
Finally, it’s imperative you maintain your insurance coverage at all times after buying a home. Often, your mortgage payments will be slightly higher than the actual cost of your loan to include extra funds for property taxes and insurance. However, this isn’t always the case. There may be times when you need to pay insurance premiums yourself.
If you’re expected to maintain coverage and pay premiums separately, letting your policy lapse could lead to financial disaster. Not only would you be unprotected if something went wrong, but your mortgage lender could also purchase force-placed insurance if your coverage is insufficient. Force-placed insurance is typically very expensive, but your mortgage loan terms will require you to pay it if you have allowed your coverage to lapse.
7. Protect Your Home with the Right Coverage
Shopping for insurance is an essential step to protect your investment and ensure you can get a mortgage loan. With these tips, you can find the right policy so you can have the peace of mind knowing you’re financially protected from major expenses due to unexpected events.
By Andrew from LendEDU – a consumer education website and financial product marketplace. Andrew has been writing in the personal finance space for the past two and a half years, gaining knowledge in insurance, student loans, small business, and general finance.