9 Surprising Things New Homeowners Should Know About Insurance
There are a lot of steps to buying your first home. Understanding insurance, however, is one of the most important steps.
Insurance protects your biggest investment. Without insurance, you could violate the terms of your mortgage – or lose your home.
If you’re a new homeowner, it’s okay to get confused about homeowners insurance. We’re here to help. Here are 9 things you should know about homeowners insurance as a new homeowner.
It’s Required for Your Mortgage
If you have a mortgage from a federally-backed lender (i.e. the vast majority of banks, credit unions, and lenders), then you need homeowners insurance.
As a mortgage holder, you don’t own your home outright. You and your bank both have a stake in your home.
To protect this stake, your lender requires you to carry homeowners insurance.
Don’t skip homeowners insurance: it’s not about personal risk or “taking a chance.” Dropping homeowners insurance could violate your mortgage, leading to severe consequences. Check your mortgage paperwork to ensure you comply with all applicable insurance requirements.
It Excludes Flood Damage or Any Damage Caused by Rising Water
Some new homeowners assume homeowners insurance covers everything. After all, you buy homeowners insurance to stay protected, right?
Unfortunately, that’s not always the case. A standard homeowners insurance policy doesn’t cover flood damage.
“Flooding” occurs when rising water damages your home.
You can experience flooding due to sewer backups, drainage ponds, and local bodies of water. Even if you don’t live in a flood zone, you may wish to buy flood insurance as an extra endorsement (say, from FEMA’s National Flood Insurance Program or NFIP).
It May Exclude Windstorm Damage
Many new homeowners are also surprised to discover that, in some wind-prone regions of the country, homeowners insurance excludes wind damage.
If you live in the coastal southeastern United States (within 100 miles of the coast from Texas to the Carolinas), for example, you may need to purchase additional windstorm insurance because of the increased risk of hurricane damage.
Without windstorm damage coverage, you may need to pay out of pocket for windstorm damage, hurricane damage, and hailstorm damage.
You Can Adjust Coverages & Deductibles to Change Monthly Costs
With homeowners insurance, you pay premiums to your insurer in exchange for covering risk.
Each month, for example, you might pay $250 for homeowners insurance.
If you want to raise or lower this amount, however, then you have several options.
To lower your premiums, raise your deductible. You’ll pay more when you need to make a claim, but it can reduce monthly premiums significantly.
To raise premiums but save money on claims, lower your deductible. You may pay a few extra dollars per month, but you’ll save money when making a claim.
Raise or lower coverage limits, as needed, to reduce premiums.
You Can Typically Change Policies Any Time
Don’t like your current insurer? Switch to a new one.
Homeowners insurance companies typically assign policies based on a 12-month term. However, you can cancel a policy mid-term, receive a refund on prepaid premiums, and switch to a new insurer if you like.
You’re not typically “locked in” to a specific insurance provider. Want to make a switch? You can do so at any time.
Sometimes, escrow can complicate things. Generally, however, your lender and insurance companies can work things out, making it easy to switch insurers as needed.
Consider Insurance Before Buying a Home
If you just bought a home, it may be too late for this tip.
However, with insurance premiums rising, it’s more important than ever to consider insurance costs before buying.
Mortgages are expensive. However, your mortgage payment is just one cost associated with home ownership. You also need to consider property taxes and insurance costs. These costs could account for anywhere from 5% to 20% of your mortgage payment.
If you live in a high-risk area, your insurance could push a home out of your budget. Even if you can comfortably afford the mortgage, you may be unable to afford insurance.
Lenders do a stress test – including mortgage and insurance payments – before offering a mortgage. However, it’s important to consider all of these expenses upfront before you buy to ensure a comfortable purchase experience.
Ask About Discounts & Savings
Homeowners insurance companies offer plenty of discounts and savings. Sometimes, all you need to do is ask or take a few minutes out of your day.
Some of the common discounts available include:
- Security system discounts. Do you have an active security system? Your home is less risky to insure.
- Bundling discounts for buying multiple insurance products from a single company.
- Good credit discounts.
- No major claim history discounts.
Contact your insurer or check online for discounts available to you.
Check Limits on Personal Property Coverage
Homeowners insurance doesn’t automatically cover everything in your home.
Instead, you need to buy extra coverage for certain high-value personal items.
Typically, insurance covers items up to a specific limit – say, $1,000 to $1,500. It does not cover items beyond this limit.
If you have jewelry, expensive tools, a brand new TV, or other items that exceed this limit, then you may want to add an endorsement to your policy. The endorsement covers high-value items. It typically only costs a few extra dollars per month, but it can make a huge difference when making a claim.
Consider Raising or Lowering Liability Limits
A standard homeowners insurance policy includes liability coverage.
If someone is injured on your property, your liability insurance covers the cost of making that person whole again – say, by covering medical bills.
Some homeowners carry too little liability insurance. Their liability insurance doesn’t protect their assets, exposing them to excess risk.
Other homeowners carry too much liability insurance. They’re over-insured and have higher liability limits than their net worth.
Check your liability limits to make sure they’re the right fit. In many cases, umbrella insurance is a good option – especially if you have significant assets beyond your house.
Final Word
Homeowners insurance is an important part of home ownership.
With a little bit of research today, you can protect yourself from homeowners insurance issues in the future.
Stephanie is a property insurance claim expert with over 20 years of experience working as an insurance adjuster, expert witness, appraiser and umpire. She is passionate about sharing her expertise, knowledge, tips and training to help both property owners and Public Adjusters in their pursuit of effectively managing claims and recovering the claim settlement they deserve after a loss.
