INSURANCE

 

OVERVIEW - INSURING YOUR HOME

Insurance coverage is an integral part of life.  Insurance can help you recover financially from illness, accidents, natural disasters or even death.  With regards to your home a wide variety of insurance products are available. Choosing the correct type and amount of coverage can be a challenge.  We want you to understand the typical types of insurance available from your insurance agent and their purposes.  It is up to you to decide what coverage is appropriate. 

If the lending institution requires insurance, then there is no choice but to have adequate coverage to protect their interests in your property until you have paid them back in full.  We have indicated which ones are required below:

 

Homeowners Insurance – REQUIRED

Your homeowners’ insurance policy will help to repair or rebuild your home and cover personal possessions lost due to theft, fire or other disasters.  It may also include Personal Liability coverage as part of the policy which pays for damage to other people’s property for which you might be legally responsible.  If not, you will need to purchase an additional policy to cover you from these potential losses.

If you have a mortgage on your home the lender will require this insurance coverage on the structure.  The mortgage company will require you to insure your home for the replacement cost of the home or, as a minimum, the amount of the loan. 

 

We want to caution you on being under-insured.

If you own a three bedroom home and the replacement cost is $150,000 and you have a mortgage of only $100,000.  If you purchase, only the minimum insurance coverage of $100,000 and your house is destroyed by fire, you will only receive $100,000. That may only be enough to build a two bedroom house.

Our suggestion is to have adequate coverage to replace your home at the current price for building materials and labor costs.  Your insurance agent will be able to calculate what this coverage needs to be.  Your coverage today may not be sufficient for the future.  The insurance companies may have a clause built into your policy to increase coverage periodically.  This may not be sufficient either.  To prevent being underinsured, you should have your policy reviewed with your Insurance Agent regularly.

Some homeowner’s policies will provide for additional living expense if your home is so badly damaged that you are unable to live in it while it is being repaired.  Check with your insurance provider if you are covered.

 

Windstorm coverage – MAY BE REQUIRED

If you are located in the south and east coast of the US, most homeowners’ policies cover damage caused by windstorms, hurricanes and hail but some insurance companies may exclude this coverage in some high-risk areas.  When you are in a high-risk area, you are able to purchase an additional coverage for the possibility of high winds caused by Hurricanes. 

 

Flood – MAY BE REQUIRED

Typically, homeowners’ policies exclude flood damage for rising water or tidal wave, but may cover burst pipes, roof leaks, or other water damage.  You will have to ask your insurance agent very specific questions to make sure you are covered for any potential loss.  For this reason, the federal government has a program for individuals with homes prone to rising water or title waves.  It is called Flood Insurance.

Depending on your home’s location you may qualify for flood insurance through the National Flood Insurance Program.  You could get a discount if you include an elevation report with your application.  Many parts of the country are in a “Flood Zone” and are able to purchase this Federal Insurance Policy.  If the elevation report determines your home is at risk of flooding, you will be required to purchase this policy for the lender.

To have a claim against a Flood Insurance policy, it is required that at least two properties in your neighborhood should be affected with damage before a claim is honored.

 

Personal Liability – this coverage should be part of your homeowner’s coverage and protects you against a lawsuit which results from you creating property damage to others.  It also protects you if someone falls in your house, sues you and a jury finds you legally liable.  This policy would pay that claim and legal fees up to the policy limits.  The coverage applies to you and all family members who live with you.

 

Medical payments – It’s not important who or what is at fault, this coverage pays for medical expenses, up to the medical payment limits of the persons actually injured at your home.  It does not apply to your injuries or those of anyone living with you or to activities involving an at-home business.

 

Mold Exclusion – some companies have recently begun to exclude damage caused by mold and fungus from their policies.  Some offer a buy-back provision, and some limit the amount they will pay.  Because of the energy efficiency of the homes now being built, mold has become more of an issue and you may wish to be further protected against this possible life threatening problem.

 

Inflation Guard – Inflation or room additions can increase the replacement cost of your home and its contents, while the actual cash value of your home may decrease over time. An inflation guard endorsement gradually increases your dwelling’s coverage up-to-date with current prices and inflation.  In order to protect yourself, you should have your policy re-evaluated periodically or when some change has happened.

 

Home Warranty/Service Plans- These plans are available from private companies who provide repair services to homeowners for household items such as refrigerators, dishwashers, air conditioners, heaters, electrical, plumbing, and any other items that may be included in this type of contract.

 

Earthquake Damage, Sinkhole Damage, and Tornado Insurance – These are insurances available in specific areas of the country that are prone to these natural disasters.  You will need to talk directly with an agent in your area about the coverage of these policies.  Make sure you ask very specific questions as to when the coverage will be in effect and when they will not.  The disappointment regarding the purchase of insurance occurs when one believes the coverage is suitable, a disaster strikes and then it is discovered that the protection was not adequate.  Think of any scenario to see if you can secure adequate coverage for your personal needs.

 

Mortgage Protection Insurance – This insurance policy is a special type of term life insurance policy purchased for the sole purpose of paying off the mortgage debt in case of the death of the mortgagor (borrower).  It can be purchased to protect the property for your estate.  The policy is owned by the borrower but the beneficiary is usually the lender.  It has a reducing face amount which coincides with the balance of the mortgage.  Therefore, if the term of the mortgage is 30 years at the end of 30 years the policy would have a face amount of zero. 

 

Mortgage Insurance (MI) or Private Mortgage Insurance (PMI) – This is a policy that is not offered by a typical Insurance agent.  It is a special Insurance company that deals only in Mortgages.  The policy is not offered to you, but to the lender.

The lender requires this policy if you have a mortgage over 80% of the appraised value.  In other words, if you have a property that is worth $100,000, and you borrow more than $80,000 (80% of $100,000) then the lender requires this insurance policy.  The reason for the insurance is to reduce the risk in case of default (foreclosure) to the bank.  If a foreclosure happens, the bank can recover losses up to the value of the policy.   

This policy may be paid in one of two ways as determined by the lender:  An upfront lump sum or included as part of your monthly payments.  If you have the monthly payment, it can cease when an appraisal (paid by you) indicates that your loan (mortgage) to value (appraisal) is 75% or less. As always, ask your Mortgage Broker or Lender if you have more questions.