Are you in the process of buying a home? If you are, you know there are many facets in purchasing a home and it is easy to feel confused and overwhelmed with making sure everything goes smoothly. We at RedefyFlatFee are here to help breakdown one of the requirements needed to complete a home purchase – homeowner’s insurance.
Many people wonder if home insurance is really necessary. Besides the fact that it is required when getting a mortgage, it is also a tool for risk management. If your home were to be seriously damaged, most people are unable to pay out of pocket to repair it. Paying an insurance premium not only saves you money in the long run, but it also allows you to protect yourself against disaster. Homeowner’s insurance covers the entirety of your home including your personal belongings from all sorts of mishaps that can occur. The amount of coverage is usually determined by a percentage of the home’s value as there is limited space within the home for belongings. Home insurance also includes liability which covers any problems that occur due to negligence such as a pipe bursting and damaging a neighbor’s property or accidents like your dog biting a person.
Factors that Affect Home Insurance Costs
The cost of home insurance is based on two factors: credit scores and the age of the home. A low or rapidly decreasing credit score can increase the cost of home insurance premium though not all insurance companies consider credit scores when determining the price. Companies who do not use credit scores usually determine costs based on the property and its location, including how far it is from the ocean. The second factor that determines the cost of home insurance is the home’s age. A home may have a history of insurance claims due to old electrical and piping systems that can increase the price of insurance. In coastal areas, the age of the home makes a big difference in policy costs. Agents investigate the quality of construction to determine if a home will be able to withstand the high winds associated with hurricanes.
Ways to Decrease Home Insurance Costs
There are several methods you can use to attempt to decrease the cost of home insurance. One way to reduce the cost of home insurance is to increase your deductible. Having a high deductible can lower your premium rate. There are three types of deductibles: Hurricane, Wind, and All Peril. Hurricane deductibles cover damages from winds caused by hurricanes or named tropical storms while Wind deductibles cover damages caused by all other winds. All Peril deductibles cover all other disasters such as fire or theft. Another way to keep your premium rates down is to not open a large amount of small home insurance claims. Having a history of too many small claims will not only increase your rates but it will also make it more difficult in the future if you decide to buy a new home or need to switch insurance policies. The last way to reduce your home insurance costs is to bundle. Bundling your home and auto insurance when living in a coastal area is especially helpful. Insurance companies can make a larger profit on automotive insurance allowing them to be more flexible with home insurance rates.
Do I need Flood Insurance?
It is important to note that flood insurance is usually not included in home insurance, though there have been recent moves in the industry to offer limited flood insurance to properties that are not likely to flood. Determining if flood insurance is necessary for a home is based on the FEMA flood zone maps. Agencies take into account the base elevation and the home’s height of elevation when calculating the rate for coverage. Age of the home also helps determine if flood insurance is needed. Homes in flooding areas built prior to 1976 have a higher flood rate if they are not elevated while homes built after 1976 require an elevation certificate. While private flood insurance company rates can be less expensive, FEMA related programs have fixed rates for all companies.
Once you’ve completed shopping for an insurance policy that works best for you, you might be wondering what the payment process will be. If you recently purchased a home and have taken out a mortgage loan, your insurance will come from your escrow account which is factored into your monthly mortgage payment. Prior to closing on your new home, you will be required to pay the insurance premium for a full year. If you are purchasing a home without a mortgage, there is the opportunity to self insure with an annual payment.
Whether you are just starting your home search or about to close on your dream home, it is important to keep homeowners insurance in mind. Remember that your insurance policy needs are unique and not all companies include everything from the start. No home insurance coverage policy is one and the same, it is important to sit down with an agent to discuss what coverage needs work best for you.
Check out our corresponding Podcast: All About Home Owner’s Insurance