Home Insurance: Both a Requirement and Good Sense

When a young couple buys their first home, part of the deal is purchasing a home insurance policy. Also known as “homeowners insurance,” this type of insurance protection is a standard part of owning a home in America. Yet there are still many homeowners who do not understand the purpose behind it, or why they should purchase it.

Before getting into the details of home insurance let us start by saying that not only is it a requirement in most cases, it is also just good sense. We purchase car insurance to protect ourselves against financial loss in the event of an accident, health insurance to protect us if we get sick or sustain a serious injury, and even life insurance to protect our families upon our passing. Home insurance is much the same deal.

A Bank Requirement

For most homeowners an insurance policy is not even an option. That is because banks and other mortgage lenders require homeowners insurance in place in order to secure a loan. They do this to protect their own interests in the same way a bank making a car loan requires collision and comprehensive insurance.

As long as your mortgage is outstanding, your bank or mortgage lender has a financial interest in the property. If there were a fire or damaging storm that ended up ruining the house, the bank would be left with nothing substantial to claim should you decide to stop making mortgage payments. Home insurance protects the bank in such cases.

Note that a standard home insurance policy does not protect the bank, or you, in every scenario. For example, most standard policies do not include coverage for damage caused by earthquakes or floods. Standard policies usually do cover:

• fire damage
• storm damage other than floods
• damage caused by burglary
• contents of the home
• liability for injuries or property damage caused to visiting guests

Home Insurance and Your Personal Property

If you have ever filed car insurance claim after an accident, only to be told your personal belongings in the car are not covered, that is typical. Car insurance companies do not cover personal belongings because that is the domain of home and renters insurance. A standard homeowner’s policy provides financial protection for all your personal belongings as well as those of your guests.

The only difficulty with this coverage is deciding the value of personal belongings. That is why insurance companies recommend homeowners document their possessions through a combination of paperwork and video recordings. Just by walking around your house with a camera, and saving paperwork when you purchase something new, you have ample support to show an insurance company how much your personal property is worth.

When Your Home Is Mortgage Free

Suppose you live in a house for the full 30 years and have the distinct pleasure of burning the mortgage documents in a grand ceremony attended by family and friends. Do you still need home insurance?

In a legal sense, home insurance is no longer required. As long as there are no outstanding liens on your property, you are free to cancel your insurance policy as you see fit. However, that is not usually a very good idea. Doing so could end up costing you a lot of money out-of-pocket in the event of a fire or damaging storm.

Even if your mortgage is completely paid off, you should still maintain a proper amount of home insurance. It provides you not only continue financial protection but also the peace of mind that comes with knowing unforeseen circumstances will not ruin you financially.

Home Insurance and Reverse Mortgages

Over the last decade or so, reverse mortgages have become very popular in the U.S. The reverse mortgage is a way to “sell” your mortgage free home to a bank yet continue living there until your death. It is a great financial tool for older Americans who want to leverage the equity in their homes for financial support during their remaining years.

In terms of home insurance, it will be required in the event you enter a reverse mortgage agreement. Again, it is necessary to protect the investment of the bank. You might find that some banks require both flood and earthquake protection even if the home is not necessarily in an area prone to those types of things. When banks do so, they are simply trying to cover every contingency. They do not want to be left with a house that has been damaged; a house they cannot immediately turn around and sell for a comfortable profit.

Purchasing Your Home Insurance Policy

If you are planning to purchase your first home in the near future, now is the time to start thinking about home insurance. Moreover, since spring is the biggest time for home shopping you probably want to take the first two months of the year to get ready. Now is the time to start contacting insurance companies.

You will not be able to give them exact details on a home you have not yet found, but you will be able to get a few quotes based on the type of home you are looking for. With a few quotes in hand you’ll have a better idea of how much home insurance is going to cost you so you can include it in your housing budget.

Just as an example, let us just say you have three quotes with an average annual premium of $650. That works out to just about $55 per month. Most of the time, your insurance payments will be held in escrow by your bank and made for you every year until your mortgage is paid off. So that $55 is added to your monthly mortgage.

Whether you are a first-time homeowner or a seasoned veteran, one of the easiest ways to get started looking for a homeowner’s policy is to use a search website like ours. When you enter your zip code and the rest of the pertinent information into our search tool, you will be given multiple quotes in just a few minutes. There is no easier way to get the home insurance quotes you need.