Sunday, January 17, 2010

INSURANCE: Homeowner's Insurance 101

This is addressed to anyone who is looking to buy insurance for the first time:

Since your lender will own a large part of your home until you pay off your mortgage, they have a legitimate right to require that you to keep it insured. Homeowner’s insurance that the lender wants to see covers the physical house against damage. They are allowed to ask for “replacement costs” of the property; so, that is what they ask for.

Now that you are about to own, you need to look in the mirror and ask yourself how much additional coverage you want. The additional insurance that most people want is a rider to cover personal items in the event of theft, fire or water damage. (This is similar to “tenant insurance” that some buy while renting.) What’s new for renters-turned-owners is the liability coverage. Insurance is there to cover damages if someone is hurt on the property. There is also insurance which covers damage caused by equipment breakdown and insurance to cover mold and fungus damage. Two-family homeowners can insure against income loss if the rental is damaged. The chances of someone being hurt are, thankfully, pretty small. So are the chances of your boiler blowing up. But, you need to choose what risks you want to take.

That’s the insurance, what about finding an agent?

If you have a good relationship with the insurance agent who provides your car, life, business or other insurance needs, be sure to call him or her about homeowner’s insurance. If you are displeased with your current insurer, then find someone else to cover all your insurance needs. No matter who you ultimately choose, call several insurance brokers before signing up for a policy. Homeowner's insurance is not standardized, so rates vary by hundreds of dollars per year.

Once you choose your homeowner’s insurance agent, he or she will review what insurance most lenders require and then discuss what additional insurance you may want. Your insurer will want to know what part of your value is the house and what is the land. Find it on-line (Municipal Assessor’s data) or ask your real estate agent.

The closing attorney must approve the insurance for the lender. After you choose what you want in your policy, your agent will contact the closing attorney. Have the closing attorney’s name handy when you call insurance agents. Your binder will read something like "**** Mortgage and/or it successors or assigns as they appear...” sometimes it just says something like "**** Mortgage ISOAATA..." Yes, your name is on there, too.

You must buy a year of homeowner’s insurance before closing. Your coverage starts closing day. At closing, you begin the escrow to pay next year’s bill. On closing day, you will have bought 15 months of coverage.

Is there anything you think I missed?

Condos are different. I’ll write about them in another post.

By Rhona Fishman for Boston Real Estate Now, December 2009

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