What You Must Know About Insurance When Buying a Home

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What You Must Know About Insurance When Buying a Home in Gilbert AZ

Posted on March 3, 2015

Purchasing a home in Gilbert AZ involves getting to know a lot of financial terms and processes that most first-time homebuyers have never been exposed to. One of the most confusing is insurance. If you've never owned a home before, your familiarity with insurance most likely centers around auto insurance, health insurance, life insurance and, perhaps, renter's insurance.

Even then, your level of familiarity may be minimal, if you are like most Americans. In fact, a mere 14 percent of those who have health insurance understand even the most basic insurance jargon, such as deductibles, co-payments and co-insurance, according to a study published in the Journal of Health Economics.

The various types of insurance required in the average real estate transaction are even less understood, so let's take a look at them and get you up to speed.

Title Insurance
Title insurance comes in two varieties: a lender's policy and an owner's policy. If you take out a mortgage to purchase the home, your lender will require that you purchase a lender's policy. This protects the lender from anyone else who thinks he is the rightful owner or otherwise has a claim against the property.

Depending on where you live, you may also be required to purchase an owner's title insurance policy. In other areas, the purchase is voluntary.

The issuance of either policy is based on research of the property's title, or the "chain of title" as it is known. The examiner will look at public records, such as deeds, wills and trusts to ensure that the wording is proper and that the names on the documents are correct. She will look for outstanding mortgages, judgments and any liens against the property. She will check easements, look for pending legal action against the property and more.

Should the examiner find problems on the title, they will need to be remedied before the purchase can be completed.

Once the policy is in place, the lender (and you, if you purchase an owner's policy) is insured against unknown heirs coming forward claiming ownership, forged signatures on the deed, mistakes in the public records, and other hidden hazards.

Homeowners Insurance
You may hear homeowners insurance referred to as hazard insurance, but they are one and the same. Again, if you take out a mortgage to purchase the home, the lender will require that you purchase homeowners insurance.

While coverage varies, most policies cover fire damage or loss, theft, wind damage, hail damage, vandalism and more. Some perils aren't typically covered, such as flood and earthquake damage, but there may be supplemental insurance that you can purchase to cover these hazards.

Your insurance agent can help you determine how much coverage you require, based on the loan amount and what it might cost to rebuild the home.

Payments to the insurance company are either kept in an escrow account sent in with your mortgage payment or the homeowner pays the premium on her own – it varies by insurer. If you suffer a loss, the insurance company will typically make out the check to both you and the lender.

Private Mortgage Insurance
Private mortgage insurance is something most homebuyers and homeowners would love to get rid of, but it's a necessary evil. Without it, many buyers would not be given a mortgage and thus not be able to purchase a home.

PMI is required of borrowers whose down payment is less than 20 percent. Because these borrowers are considered higher risk, the lender needs assurance that it will get its money should the borrower default on the loan.

Because the borrower pays the premium (typically added to the monthly mortgage payment), it seems that the lender is the only party that benefits. Keep in mind, however, that without PMI, lenders would demand a 20 percent down payment. Therefore, the cash-poor borrower reaps an enormous benefit.

The good news about PMI - at least for those with conventional loans - is that you can request a cancellation of the insurance once your loan balance reaches 80 percent of the original value of the home. Unfortunately, borrowers with an FHA-backed loan are locked into paying mortgage insurance premiums for the life of the loan, if they put less than 10 percent down. Borrowers who pay more than 10 percent, but less than 20 percent, can cancel the mortgage insurance in 11 years.

The best people to speak with if you have questions about any type of insurance required during the home-purchase process are your lawyer, your real estate agent and your insurance agent.

Get more Home Buyer's Tips at www.SweeEastValleyHomes.com

Swee Ng, is a Gilbert resident specializing in win-win real estate transaction through great communication and fighting for his clients' best interest. After all, this is more than real estates, this is about your life and your dreams.

If you are looking to buy or sell your home in Gilbert AZ, we hope you will consider us.

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Red Flag for Homeowner's Insurance

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If you own a home, you have homeowners insurance. What you may not know is that, like your home, your insurance policy needs maintenance and updating. Failing to update your homeowners insurance policy could cost you big bucks in the long run.

But how do you know when it's time to update your insurance policy? Generally speaking, significant upgrades to your home or changes in your life mean it's time to do an audit of your insurance coverage. Here are some situations where taking another look at your insurance policy is necessary:

1. You want to remodel your home.
Think remodeling your 5-by-8-foot powder room is no big deal? Think again. Even a small renovation like this can have a big impact on your homeowners insurance. Consider this: If your contractor and subcontractors don't have worker's compensation policies, they could sue you if they're hurt on your property. That means you could end up footing the bill for medical expenses, any necessary rehabilitation and wages lost while out of work.

Be sure to verify the insurance coverage of any and all contractors working in your home. The folks at Travelers Insurance say you should contact your insurance company if you find your contractors' coverage is insufficient. Ask them about extending the limits of the liability portion of your homeowners' insurance policy to cover you if someone is hurt on the job.

Homeowners insurance liability limits generally start at about $100,000, but some experts recommend that you purchase at least $300,000 worth of protection. If you want even more, consider purchasing an umbrella insurance policy, which provides broader coverage and higher liability limits. In many cases, you'll save money on the coverage by purchasing an umbrella policy, "regular" policy and auto or life insurance from the same agency.

If you're putting on an addition or making significant upgrades to your home, be sure to contact your provider before beginning the project. If that new addition burns to the ground before you've increased your coverage, you could be on the hook for the cost of rebuilding it.

2. You've gotten married – or divorced.
According to the Insurance Information Institute, these are two big life changes that warrant changes in homeowners insurance – albeit for different reasons.

If you're getting married, you'll be combining two households' worth of stuff, including potentially valuable personal belongings. You may also get some pretty expensive wedding gifts, which could necessitate more coverage. Take a detailed home inventory of your belongings, and discuss it with your agent. This inventory will give you an idea of how much coverage you will need as you embark on your new life together. (One thing to consider: The single policy will probably be less expensive than paying for homeowners insurance for two separate homes.)

This inventory is also helpful in the event of a divorce, since you can revisit it to determine the appropriate division of property. If your marriage ends, be sure to contact your provider for help unwinding auto, homeowners and life insurance policies.

A standard homeowners insurance policy includes coverage for your personal belongings, both on and off the premises (unless you've decided against off-premises coverage). Most companies provide coverage for 50 to 70 percent of the amount of insurance you have on the structure of your home, the Insurance Information Institute says. That means that if you have $100,000 worth of insurance on the structure of your home, you have $50,000 to $70,000 worth of coverage for your belongings.

An inventory of your belongings will help you decide if this coverage is enough. Keep in mind that expensive items, like jewelry or high-end heirlooms, might be covered only up to a certain amount. Once you've taken an inventory of your belongings, contact your insurance provider to decide whether or not you need additional personal property coverage based on the cost of your belongings.

3. There's a new (furry) addition to the family.
Bringing a new puppy home is exciting, but Fido could be a financial threat if you're not adequately covered. According to Insurance Information Institute data, dog bites accounted for more than a third of all homeowners liability claim dollars in 2011 – the latest data available – for a total of $479 million.

Typically, homeowners insurance policies cover dog-bite liability as part of the standard coverage. But if your limit is $100,000 and the claim costs you $300,000, you're responsible for that $200,000 – whether it's legal fees or damages.
Since the personal liability coverage available through a standard homeowners policy isn't always enough, the institute advises dog owners to consider purchasing a personal excess liability policy, otherwise known as a personal umbrella policy – or PUP. This policy, which, according to Allstate, can cost as little as $1 per day based on the state you live in, kicks in when your regular insurance hits its coverage ceiling.

If you're bringing home a dog, it's worth it to discuss getting a PUP, too – it could save you thousands of dollars if Fido bites one of the neighbors.

These aren't all the scenarios which should prompt an insurance audit. As a general rule, it's worth looking over your policy once a year – even if you haven't gone through any huge life changes. When in doubt, contact your provider to discuss your coverage options.

via yahoo homes

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