Most homebuyers in the US borrow money to purchase their home. As a result, the mortgage lender always requires hazard insurance, commonly called homeowner's insurance as a condition of the loan in order to protect the bank if the home were destroyed. Even if you rent or no longer have a mortgage, hazard insurance ensures protection for both homeowners and renters, therefore it is wise to purchase an adequate policy.
Hazard insurance policies typically provide basic protection for your property from damage, theft, vandalism and damage by vehicles, which include losses occurring to one's home, its contents, loss of its use (additional living expenses) or loss of other personal possessions of the homeowner. Your homeowner's policy also provides liability insurance for accidents that may happen at your home or at the hands of the homeowner within the policy territory, such as lawsuits if your dog bites someone. In addition, it offers protection against claims you are legally obligated to pay, payment of the cost of defending claims against you, medical expenses of others and accidental death benefits.
However, your standard policy may not provide all of the protection you want or need. It insures all major perils, except flood, earthquake, war, and nuclear accidents. Floods are not covered by ordinary homeowners insurance but arc available through the Federal Emergency Management Agency (FEMA). In California, you have the option of purchasing earthquake coverage and can obtain additional infoimation from the California Earthquake Authority.
For non-homeowners, renters insurance helps protect the personal property you keep inside the residence you are renting, including furniture, televisions, computers, clothing and jewelry. All too often, renters are unaware that their landlord's insurance policy docs not protect their personal belongings and find out too late, usually after a loss has occurred. In addition, if you own a condo or townhomc, HOA insurance policies do not cover the interior contents of your dwelling, so a separate policy should be purchased as well.
I carried a renter's insurance policy before I became a homeowner because I weighed the low monthly premium against what it would cost to replace all of my belongings in the event of theft or a fire and advised my friends and family to do the same. Unfortunately, a close friend did not heed my advice and was devastated when her house was burglarized and her brand new computer, clothing and other personal effects were stolen. The cost of homeowner's insurance often depends on what it would cost to replace the house and which additional riders (additional items to be insured) are attached to the policy. Most insurers charge a lower premium if it appears less likely that the home will be damaged or destroyed, if you cany a higher deductible and if you have safety 'measures in place such as an alarm system or security bars.
Make sure you know how much insurance you are going to need by estimating how much it would cost to replace your home and its contents. This is done by calculating how many square feet you have and multiplying that number by the local construction cost per square foot for similar homes in your neighborhood. If you own rental property, insurance premiums are usually slightly higher than owner occupied properties but will provide liability coverage and financial protection if someone is accidentally injured on your property.
In addition, if you plan to have extensive work done on your property, it is advised that you contact your home insurance provider ahead of any work taking place to make sure you are covered. This is also a good time to let them know if you are building an addition or anything else that would affect the rebuild cost of your home.
It is wise to take an annual inventory of your home as well as taking pictures and saving receipts from high ticket items. Keep in mind that it is always best to be honest and forthright with your insurer and disclose everything about your property to make certain your coverage is adequate because failure to do so could wind up very costly in the end.
Diana Cooper is a Realtor® with Keller Williams Realty