For the first time home buyer, there is a litany of resources to help you investigate topics from loans and mortgages to taxes and the finer points of moving in to the home owner realm. But an equally imperative detail – though often overlooked – is homeowners insurance. When should you get it? What should be covered? What nuances to look out for? These are all important things that new homeowners should know and understand.
How soon before closing should first-time homeowners be looking for insurance?
The short answer is – well in advance. While not a legal requirement, you’ll want proof of insurance at closing. Keep in mind that, often, most lenders will require an insurance document that gives proof of an entire year’s worth of coverage before a loan will become unconditional.
How much home insurance do you need?
Many factors that play into what to cover and for how much. The first thing you will need to determine is the replacement cost for your home. Calculate the amount of money it would take to replace your home and its contents in the case of a total loss.
From there, understand the sum insured – that is, the maximum amount a given insurance policy is responsible to pay – and ensure that those numbers are congruent. It is important that you are comfortable with the amount you’ve determined and that your policy sufficiently covers that total.
Is replacement cost the same as market value?
First-time home buyers might not be aware of the subtle difference between how their house is valued on the market, and what the cost is to replace it. Understanding the variance can save headaches and help you make a better-informed decision on the amount and type of insurance policy you are shopping for and what is ideal for you and your family.
Market value is defined as the assessed worth of your property including the house itself and the land it is on. At what price would it sell for on the open real estate market? There are a number of online calculators that can help you determine an accurate market value which you will come in handy when determining a replacement cost.
Replacement cost is the projected price to fully reconstruct your home. This can include your residential building and, in some cases, other structures on the property. This is the most relevant amount you should be using to ensure your insurance policy is right for you.
The distinctions between these terms and differing rates are important. Because your replacement costs do not include the value of any land associated with your property while market value does, often times the insurable amount of your home is lower than the actual home price. Keep in mind that there are always varying factors in play that can add value and, thus, increase the insurable cost of your home. Talking with an agent to better understand your options is always advised.
What does a standard homeowners insurance policy cover?
A typical homeowners policy is responsible for repairing or rebuilding your home. But you will want to understand specifics before you settle on a specific policy. Your basic coverage will keep you protected in the following cases:
- Vandalism/ Riot
- Wind and hail
- Falling objects
- Freezing of pipes
- Damage by aircraft or vehicles
- Water damage from ruptured plumbing, steam, and water heating systems
Keep in mind, for a claim to be covered it must be sudden and accidental and cannot be attributed to something occurring over time. Also, be aware that a standard policy will typically not cover damage caused by a flood, earthquake or routine wear and tear. It is important to do independent research to understand the risks and benefits of your new home, community, and region to ensure you are finding the right policy for your big investment.
If you are looking for more details about the coverage you need as a first-time home buyer, contact our office: