Buying your first home could easily be the most exhilarating but scary decision you make. It could be the best decision you ever make, but it could also be the biggest mistake of your adult life.
While homeownership is one of those things that we all endeavor to do and often dream about, it requires you to wear your big boy pants since you will make many big decisions. These decisions are both intimidating and confusing, and if you are not careful, you may be swept in a whirlwind that leaves you deep in trouble.
Today, we look at one of the big decisions you will have to make – the matter of homebuyer insurance. The homeowners or homebuyers insurance promises a great deal of security, but it remains one of those subjects that you have to carefully consider.
In this article, we’ll share helpful tips about homebuyer insurance and how to choose the best homebuyer’s insurance for your first home.
So, let’s get started.
Table of Contents
What is home buyer insurance?
The homebuyer or homeowner insurance can be defined as a type/form of property insurance that will cover losses and/or damages to your residence, as well as the assets and furnishings in your home. This insurance product also offers liability coverage against different incidences in your home or at the property.
According to Dave Ramsey, the homeowner’s insurance is one of the biggest investments you could make for your home. This insurance coverage protects you from disasters, and because of the transfer of the risk to the insurance company, this insurance policy will give you peace of mind, which is the most priceless thing.
Most of the common homebuyer insurance products will come with different important types of coverage such as dwelling coverage, personal property coverage, other structures coverage, personal liability coverage, as well as additional living expense coverage.
Tips for Homeowners Insurance
With the basics out of the way, let’s now look at some of the important tips you need to keep in mind/under consideration as a first time home buyer looking for the best insurance.
But first, we recommend that you never wait to buy the homebuyer/homeowner’s insurance. Doing this can be the most expensive mistake during the homebuying process. Lack of insurance products could also drive up your mortgage rates.
The good news is that the bank will need proof of the homebuyer’s insurance before they approve and close down on your loan. This means you have to find the best insurance product on the market before you think of the closing steps and closing costs for the home loan.
That said, here are some of the important things you should do,
1. Get some Quotes & Compare the policies
There are no two ways about it – for the best home buyer insurance products. You must research, inquire about the products offered, gather quotes, and compare the policies offered.
To get the best first-time homebuyer’s or homeowner’s insurance rate and policy, you need to collect as many quotes as possible. It is easy for you to pick out the home insurance providers that offer the best products at the most competitive rates with many options.
To simplify the comparison process, make sure that you are comparing apples with apples. What this means is that you should be comparing quotes from home insurance policies with similar coverages. Doing this ensures a more accurate analysis.
You could do as you compare products to buy more than one home insurance coverage from one insurer. This is called bundling, and you could save some money in the process. But before you settle on bundling, make sure you consider a company that offers great coverage and products at the most competitive rates.
During this comparison, you shouldn’t forget to ask about (and for) discounts. You won’t know about the discounts you are eligible for if you don’t ask. Keep in mind that although most of the home insurance companies offer discounts, the discount rates are standardized, and some companies offer bigger discounts than others.
For the best discounts, you have to negotiate. That said, some insurance companies offer bigger discounts to homeowners with robust home security systems like automatic water shut-off valves and even leak sensors.
2. Get full knowledge on home buyer insurance Coverages
Besides comparing rates and policies, the other important thing you need to find the best insurance product is knowledge of the insurance coverages in the homebuyers category.
You have several coverages to choose from, but you need to understand what they are all about for you to choose the coverage that matches your needs more appropriately. Regarding coverages, here are some basics you should be aware of:
Dwelling coverage – This coverage would cover the costs of rebuilding your home in case it crumbles down in a windstorm, burns down, or if it explodes for no reason. For this coverage, the policy’s cost should cover the replacement costs of the house – determined using the local construction costs. You could also work with a professional for an estimate or use an online calculator.
That said, it’s important to note that the replacement costs will be affected by things like remodeled kitchens, new building codes, rising costs of construction and building materials, and even something like the cost of replacing old or hard-to-replace features.
The other coverages include the personal property coverage that’s to cover the costs associated with all your personal items, cheap or expensive; liability coverage for when someone is hurt on your property, including pets; and the additional living coverage applicable in case of super-emergencies like tornadoes.
You should also consider buying more than enough of the loss of use coverage. This is an important coverage intended to cover your living expenses cost in case you are forced to relocate while the house undergoes repairs. The recommended value of the loss of use coverage is about 20% of the dwelling coverage value.
That said, you need to know what the coverage covers and what it won’t cover.
3. Check the Insurance company’s background
The insurance company’s background is also important, as is the rating. You need a company that’s experienced in the industry and one that has a good rating because that tells you the company will meet all its claims after a disaster hits.
In your search for the best insurance companies, you shouldn’t assume that the insurer’s companies are all the same – some are large, others are big. There also are regional and national insurers.
Also, check with your state’s insurance commissioner for complaints and actual reviews of the company.
4. To save money, pick a high enough deductible
You can save money by picking an insurance coverage that comes with the highest possible deductible. You should budget for your deductible, too, in case you have to make a claim or in case of smaller repairs costing less than the value of the deductible.
5. Conduct preventive maintenance
If you are going to save money and also get the best terms on your insurance coverage, you’ll need to implement some preventive measures in your home, specifically after a forecast or warning is issued. For example, you could install high-impact-resistant windows and doors, use non-combustible landscaping, or even clearing the bushes around your property to make your home safer.
6. Look out for additional protections
Keep in mind that based on your location, you’d need an adequate amount of protection, especially in case of disasters like hurricanes, wildfires, or floods. In some of these cases, you’d need an additional insurance policy to cover you if disasters are not covered under the homebuyers’ coverage.
7. Include liability protection
Besides the standard homeowner’s insurance coverage, every first-time homeowner is advised to invest in liability protection valued at a minimum of $100,000. This coverage is important and protects you from expensive claims from slip-and-fall accidents that could happen on your property. If, for example, you have a swimming pool or are generally a high-net-worth individual, you could be a hot target for even the most frivolous lawsuits. It would be smart to increase the value of your liability coverage above the recommended minimum in such cases.
- Engage Professionals
Find the best agents (independent or otherwise) and make inquiries. Besides giving quotes, the best agents will educate you on all matters of home buyers’ insurance. If this is your first home, this information from the agent will be important and helpful.
- Improve your credit score
Pay down all existing debt, avoid making late payments, pay off the high-interest credit card debts, and work on a long term plan to improve and keep up your credit score. Also, you should never let your coverage lapse.
Faqs for First-Time Home Buyer Insurance
Is homeowners’ insurance required?
Homeowners insurance isn’t required by law in any state. However, most lenders will require you to keep an active homeowners’ insurance policy until your mortgage loan is paid off.
How do I get proof of insurance before the home purchase is complete?
Most lenders require you to get proof of insurance before closing on the loan. This proof comes in the form of an insurance binder. An insurance binder is a document that provides temporary proof of insurance while your policy is being underwritten. Contact your independent insurance agent to share the details about your property and get the policy you need. Your agent can provide you with a binder to close your loan.
How much homeowners’ insurance do I need?
No two homeowners’ policies should be exactly the same. You’ll need coverage to protect your home, the structures on your property, and your possessions inside your home. Begin by calculating the cost to rebuild your home, the value of your possessions, and the cost of renting in your area. Discuss your calculations with your independent insurance agent to determine the right policy for your unique lifestyle.
When should I get homeowners’ insurance?
It’s a good idea to start shopping for homeowners’ insurance immediately after your offer is accepted. This will give you time to shop around, learn about the coverage you need, and find a trustworthy insurance agent. You’ll need an insurance binder before closing and delaying your insurance purchase until the last minute could mean closing is also delayed.
How do I know if I need additional coverage?
While it’s common for new homeowners to assume a homeowners’ policy will automatically cover all perils, this isn’t necessarily true. In fact, most policies specifically exempt coverage for flood damage and fire damage in high-risk areas. If your property is located in an area that’s considered high risk for floods, wildfires, or earthquakes, you may want to ask your independent insurance agent about add-on policies for extra coverage.
These are the best tips for new homeowners looking for the best home buyer insurance. Follow these tips, and only sign off on a policy when you are sure that it is the right coverage.