So what is homeowners insurance and why do you need it? Picking out the right house or condo and getting approved for a loan isn’t all there is to becoming a homeowner. You also need to invest in homeowners insurance. You’ve put so much effort into getting the home—now insurance is what will help you keep it in good condition. Not only is homeowners insurance a good idea, but some form of it is also required by most mortgage lenders. There are lots of different kinds of homeowners insurance, so we’ll give you a brief overview of them all.
Is Homeowners Insurance Required?
Homeowners insurance is not required by law like auto insurance. But mortgage lenders normally require some kind of bare-bones coverage just to make sure the structure of the home is protected. Similarly, if your home is located on a fault line, or land prone to flooding, your lender may require you to purchase flood or earthquake insurance. Once your mortgage is paid off, you can ditch your homeowners insurance if you really want to. But anyone who has spent up to thirty years paying off their home will still want to make sure it’s protected. Who knows what could happen?
How Much Homeowners Insurance Do You Need?
The amount of homeowners insurance you need depends on how many assets you want to protect. Policies required by your lender may only cover the structure of your house, so you’ll need to purchase additional policies if you want to cover your furniture, clothes, or appliances. In case of an accident, it’s also a good idea to be insured for the amount it will cost to live somewhere else temporarily while your home is being repaired.
Other factors to take into account are the cost of construction in your area, custom additions like an extra bathroom, and the type, style, size, or age of the home. All of these will influence how much insurance you need to purchase to feel secure and fully protected.
What Do Different Types of Homeowners Insurance Cover?
Homeowners usually choose between these three insurance policies:
- Homeowners 1 (HO-1) protects your home from 11 basic perils: fire, wind, hail, smoke, lightning, explosions, collapse, collision, vandalism, volcanic activity, and civil commotion or rioting.
- Homeowners 2 (HO-2) protects your home from the first 11 perils as well as burglary, ice and snow, artificial electricity, falling objects, water damage, and frozen plumbing.
- Homeowners 3 (HO-3) protects your home from all previously listed perils except: flood damage, earthquake damage, power failure, damage from war, nuclear hazards, ordinance of law, and neglect.
Dwelling insurance is usually the kind of insurance required by mortgage lenders. It protects the physical structure of the home as well as any attached structures, like sheds, but not the contents inside. Landlords may require their tenants to purchase this type of insurance, since their asset is the building itself, not your belongings. Dwelling insurance usually covers fire, smoke, rot, hail, sinkhole, wind, and lightning damage.
To protect individual items inside your home, you can purchase some form of property insurance. One example of this is a floater policy. A floater policy protects a moveable object of value, like jewelry, artwork, or antiques. These policies don’t require a deductible. You may also want to compile a home inventory: this is a list of all the valuable things in your home and what they’re worth. This can be useful information for insurance agents trying to figure out how much to reimburse you in the instance of theft or damage. Home inventories and floater policies can affect your insurance premiums overall, but depending on what you’re protecting, security will be worth the higher cost.
Earthquake and Flood Insurance
Earthquake and flood damage are not usually covered by a standard homeowners insurance policy. Instead, you may need to purchase this protection separately. Typically, earthquake and flood policies are paid for at closing. Talk to your insurance agent to decide the most cost-efficient way to protect your home from flood or earthquake damage.
If a visitor is injured in your house or on your property, you as the homeowner are liable, meaning you’ll probably have to pay the medical bills. This is where liability insurance comes in. Liability insurance helps mitigate the cost of hospital treatment and your defense in the case of a lawsuit.
How Much Does Homeowners Insurance Cost?
A lot of things can influence your homeowners insurance premium, such as your home’s material, structure, or age. Your home’s location or the climate of the area can also affect your premium. If you live downstream of a large river, you’re probably going to be pay more in flood insurance. Your credit score can also make a difference: if you have a sub-prime credit score, your insurance policies may have higher rates.
Insurance premiums also come with a liability limit. This limit usually extends to $100,000, but you can purchase a higher limit if you feel it necessary. A recommended liability limit falls between $300,000 and $500,000, but this depends on how much your home is worth.
A Safe and Secure Future
We at Low VA Rates see firsthand the sacrifices you make and the work you put into achieving home ownership. We want to see your efforts protected from any possible disaster or inconvenience. That’s why we recommend you get a homeowners insurance policy suited to your home and financial goals. For more information on the VA loan process give us a call at 866-569-8272.