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Market Research Group

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Buy Home Insurance

Before closing on a new home, your lender will require you to purchase a home insurance policy. While many lenders provide insurance referrals, choosing a home insurance company is your decision. You're responsible for making sure the coverages on your policy adequately protect your residence, detached structures, and personal belongings.

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You're often required to show proof of homeowners insurance to your lender before they'll relinquish the keys to your property and fund your home loan. Until your home is paid in full, your lender holds a lien on your property, so it's in their best interest to make sure that the property is insured while you're paying down your mortgage.

If you're purchasing your new home with cash or an unsecured line of credit (credit card or personal loan), you may not be required to show proof of home insurance before closing. Home insurance isn't mandated in any state, but you should still consider buying homeowners insurance to protect the equity in your home. Learn more about what home insurance covers and how homeowners insurance works.

During the mortgage approval process, your loan specialist will let you know when to buy homeowners insurance. However, you can start shopping for a policy as soon as you've solidified your new address. Shopping for homeowners insurance early gives you more time to select the right policy and look into ways you can save.

While your lender may provide a referral, it's a good practice to compare homeowners insurance quotes and pricing, homeowners insurance coverages, and consumer reviews before making a final choice. You can often save money by bundling homeowners and auto insurance with the same insurer. Learn more about switching your homeowners insurance.

Your belongings, such as clothing, furniture, electronics, and jewelry, are insured under Coverage C (personal property coverage) on your home insurance policy. Make sure the limit is enough to cover everything you own. Keep in mind that certain items may fall under a specific category with a "sublimit" set by your insurance company. And if you have any expensive items, such as art or collectibles or jewelry and engagement rings, you may need to add an insurance rider to fully cover them.

Coverage E (personal liability coverage) protects you if you're liable for an incident that injures someone. Be sure to select a liability limit that properly covers what you have in assets. Most home insurance policies max out at a $500,000 liability limit. If you need additional coverage, you can purchase umbrella insurance, which provides extra liability coverage for home insurance policies.

Depending on where you are shopping for home insurance, there will be a list of things that won't be covered on a standard policy. These could include earthquakes, landslides, mudflows, and flooding. If you're at risk for a peril that isn't covered on your policy, ask your home insurance agent or company if there's an option to purchase protection for excluded incidents.

When buying home insurance for the first time, it's important to pay attention to your homeowners insurance deductible for property damage. Your deductible is the portion of the claim you're responsible for, so make sure the deductible amount is within your budget.

Unlike car insurance, your home insurance deductible won't always be a set dollar amount. It could be a percentage of your policy's dwelling coverage. Your policy may even include a split deductible. That means you have a set dollar amount for most claims, but a percentage may apply for wind damage or other covered perils.

Most first-time home buyers have their home insurance in escrow. Escrow accounts hold the funds designated for your home insurance and property taxes. Each month, you pay a specific amount (typically, a few hundred dollars) above your normal mortgage payment. Your lender/mortgage servicer keeps these extra funds in an escrow account.

When your home insurance and property taxes are due, the lender pays these fees on your behalf from the escrow account. Escrow accounts are recommended to ensure you stay up to date with your home insurance and property taxes. Some homeowners prefer to use escrow to pay for insurance and taxes in monthly installments, rather than annually or biannually.

If your down payment is less than 20%, most lenders will require you to obtain private mortgage insurance (PMI). The difference between PMI and homeowners insurance is that PMI is a safeguard for your lender and doesn't insure your property in any way. Learn more about how to pay for homeowners insurance.

Your lender may require the first term of your homeowners insurance to be paid at closing. Most lenders will collect roughly 10% to 20% of your annual home insurance premium in your closing costs and deposit the funds into your escrow account for the next billing cycle. Without escrow, you'll often have to pay the entire first year's home insurance premium at the time of closing. Some lenders may also charge a nominal fee to waive your escrow requirement.

Please note: The above is meant as general information to help you understand the different aspects of insurance. Read our editorial standards for Answers content. This information is not an insurance policy, does not refer to any specific insurance policy, and does not modify any provisions, limitations, or exclusions expressly stated in any insurance policy. Descriptions of all coverages and other features are necessarily brief; in order to fully understand the coverages and other features of a specific insurance policy, we encourage you to read the applicable policy and/or speak to an insurance representative. Coverages and other features vary between insurers, vary by state, and are not available in all states. Whether an accident or other loss is covered is subject to the terms and conditions of the actual insurance policy or policies involved in the claim. References to average or typical premiums, amounts of losses, deductibles, costs of coverages/repair, etc., are illustrative and may not apply to your situation. We are not responsible for the content of any third-party sites linked from this page.

If your lender doesn't require you to have an escrow account, understand that your homeowners insurance isn't included in your mortgage payment, and your premium must be paid separately. Homeowners insurance can be paid in advance or through monthly payments, but keep in mind that payment plans can vary by insurer.

Your lender will require the first term of your homeowners insurance to be paid at closing. Most lenders will collect roughly 10% to 20% of your annual home insurance premium in your closing costs and deposit the funds into your escrow account for the next billing cycle. Without escrow, you'll often have to pay the entire first year's home insurance premium at the time of closing. Some lenders may also charge a nominal fee to waive your escrow requirement.

Compared to all of the research, time, and energy that is put into purchasing a home, buying a homeowners insurance policy is too often almost an afterthought. However, homeowners insurance deserves more careful consideration because choosing the right policy can prevent financial ruin after a major disaster strikes.

A home insurance policy provides coverage to repair or replace your home and its contents following damage caused by fire, smoke, water, theft, vandalism, a storm, or some other event named in the policy. These are called "perils."

Homeowners insurance also covers in-home personal property that's damaged, stolen, or destroyed. Finally, homeowners insurance pays for medical and legal expenses if someone other than you or your family is injured on your property.

The same applies if you purchase a co-op, a condominium, or a mobile home. If you borrow money to make the purchase, your lender will likely require a policy no matter what type of home it is. Condominium or private community associations may also require homeowners insurance to cover common property and facilities, such as a shared roof, common walls, a tennis court, or a swimming pool.

But if you choose to search for a policy on your own, many insurance websites have estimating tools that give you an idea of what your cost will be once you enter basic information about your home and its contents.

There are always ways to save on homeowners insurance, and they vary with whatever company or policy you choose. However, one of the most common ways to save is by bundling multiple policies, like home and auto insurance, with one company.

Home insurance costs can vary greatly depending on a variety of factors, including the age, size, and location of your home, and the likelihood of a major weather event in your area. Premiums average $100-$170 per month for the companies we rated.

Where you live and the natural disasters afflicting that area are a big factor," says Lynne McChristian, communications consultant at the Insurance Information Institute. In particular, living in an area prone to floods can make home insurance quite expensive. Homeowners insurance is also likely to cost more in areas with higher crime rates, higher rebuilding costs, or stricter building codes. And a home in an area with a volunteer fire department located miles away may cost more to insure than one with a nearby fire station staffed by professionals.

Other things that may affect homeowners insurance premiums include the age and condition of the roof, furnace, and other major home components. Security systems and fire alarms can lower premiums. The need for additional coverage to cover very valuable possessions can add to the cost of a standard premium. Finally, your monthly insurance premiums will probably be affected by the size of your deductible, or the amount you pay out of pocket if you file a claim. Generally, the higher the deductible, the lower your premiums will be. 041b061a72

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