When it comes to purchasing your first home, there are a lot of things you are learning as someone new to real estate transactions. Your real estate agent will be able to guide you through most of the home buying process but once you reach the point of buying your new homeowner’s insurance policy, it’s important you understand the ins and outs of how this policy will impact you down the road. In the event something happens to your property, the type of policy and coverage you purchase will make all the difference when it comes to the ease of getting your life back on track after a disaster.
Here is what you need to consider before buying your first homeowner’s insurance policy:
Have you reached out to multiple companies?
Comparison shopping is a must for a first-timer. If you don’t already have a relationship with a preferred provider, ask around and find out what companies have to offer. The rates, amount of coverage, and service that you receive from different companies can vary greatly so don’t just pick the lowest priced option. It’s also important to consider whether you will need additional coverage, like flood insurance, for your home. Since you will likely only interact with your insurance company once a disaster happens, it’s crucial to find a company that provides great service. When your stress is high, you will want a provider that can handle your claim without adding too much burden on you.
How will you pay for your policy?
Most home buyers will escrow their insurance payments with their monthly mortgage payments. This is a great option for not only home buyers but lenders prefer this method because it insures them their investment is being protected. By adding the monthly insurance amount to you mortgage check, it is one less worry on your plate. Your premium will be paid by the lender from the escrow account annually when it’s due.
What type of policy do you need?
There are different types of coverage that might be needed depending on your property. Condos fall under a different requirement than single-family structures. There are also options for both broad and narrow coverage so it is important to read over the differences and understand your needs. There is also a difference between replacement cost and actual cash value – replacement cost coverage will cover your property and contents up to a certain dollar amount while actual cash value gives you the current cash value of your property with depreciation factored in. The cost of your plan will vary depending on your choices so make sure to consider all options carefully.
Do you understand the terminology?
Looking over a homeowner’s insurance policy can be overwhelming, especially if you are unsure what all the terms mean. Do you know what a deductible is? What about liability coverage? Are you clear on what sub-limits your policy has? Do you know what a premium is? These are things you need to know before making an informed decision between companies. If you are unsure, feel free to ask questions of your insurance representative. The better they can help you understand the ins and outs of their policy now, the more likely they will give you great service if you need it in the future.
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