What Type of Insurance Do I Need When Buying a Home?
August 31, 2020
- Last edition
August 31, 2020
Getting the right insurance is an essential part of the home-buying process. Ensuring that you have enough coverage in the event of a disaster without overdoing your monthly payments is a delicate balancing act.
Here are some types of insurance to consider when buying a home and how to get the best possible deal.
General homeowners' insurance is an absolute must. This type of insurance covers your property and belongings in the event of a fire, theft, or other disasters.
If one of these events occurs, the insurance will be used to repair or rebuild your home, replace your items, and cover your temporary lodging expenses. You need this insurance, whether you have a house or a condo. In some places, having an up-to-date insurance policy is a legal requirement for buying a home.
Other home insurance coverage types include:
Liability insurance - this coverage protects the homeowner if an injury takes place on the property.
Property insurance - this provides coverage for outbuildings and other structures on the property that aren’t considered a part of the house.
Special exclusions - things like flood coverage aren’t included in general policies. This supplemental coverage is worth it if you live in a place that's prone to storms and flooding.
Ensuring you have the right coverage in place is a necessity when buying a home.
Mortgage insurance is meant to protect the lender if you default on a loan and the borrower if a tragedy occurs.
Mortgage insurance could include:
Private mortgage insurance (PMI) - If your down payment is less than 20% of the home's value, you may be required to pay mortgage insurance. This fee is often rolled into your mortgage payment.
Qualified mortgage insurance premium (MIP) - If you get an FHA-backed mortgage, you may require MIP regardless of your down payment percentage.
Mortgage title insurance - protects the buyer in the event that a title is contested or a lien is in place against the property.
Mortgage life insurance - covers the mortgage if someone on the title dies.
Fortunately, you can stop paying mortgage insurance after paying 20% of the home's value (though this number may vary depending on your location). Most companies won't tell you when you've reached that threshold, so it's worth tracking your payments and advocating for yourself.
After you stop paying your mortgage insurance premium, consider rolling that money into an extra mortgage payment. This technique can save you thousands of dollars in interest and help you pay your mortgage off faster.
When moving to a new home, it's always worth getting moving insurance to cover your belongings.
Moving insurance may cover:
Acts of God - major events and natural disasters that impact your belongings.
Liability - if a mover (hired or volunteered) gets hurt while moving.
Loss and theft - if an item goes missing during the move.
Damage and replacement - compensates owners for irreplaceable items or provides funds to replace the said item.
Tips for Getting Home Insurance
While being covered is essential, paying too much for coverage is pointless. Here are some helpful tips for finding the best possible insurance policies and plans.
A better credit score will get you better insurance rates as well as better mortgage rates.
Bundle Your Insurance Options
If possible, bundle your insurance under one provider. Having your home and auto insurance with one company will often open up discount opportunities to reward your loyalty.
Increase Your Deductible
While it may seem counterintuitive, increasing your deductible is a fantastic way to save on insurance. Generally, a higher deductible will grant you access to a lower monthly rate.
You should avoid putting in an insurance claim for small issues, regardless of your deductible. As insurance is something you need to have but will hopefully never use, having a higher deductible is often worth it.
Take some time to research providers and get quotes for comparison. All insurance companies use a different equation to determine how much your coverage will cost. Be sure to read online reviews and take customer service and reliability into mind.
Having the right insurance plans in place will give you peace of mind and protect your valuable assets.