Insurance

Homeowners Insurance

When you insure your home, you should insure your home for the total amount it would cost to rebuild your home if it were destroyed. If you don’t have sufficient insurance, your insurance company may only pay a portion of the cost of replacing or repairing damaged items.

There are three ways to insure the structure of your home:

Replacement Cost: Insurance that pays the policyholder the cost of replacing the damaged property without deduction for depreciation, but limited to a maximum dollar amount.

Guaranteed Replacement Cost: Insurance that pays the full cost of replacing damaged property, without a deduction for depreciation and without a dollar limit. This coverage is not available in all states and some companies limit the coverage to 120 percent of the cost of rebuilding your home. This gives you protection against such things as a sudden increase in construction costs due to a shortage of building materials.

Actual Cash Value: Insurance under which the policyholder receives an amount equal to the replacement value of damaged property minus an allowance for depreciation. Unless a homeowners policy specifies that property is covered for its replacement value, the coverage is for actual cash value.

For a quick estimate of the amount to rebuild your home, multiply the local building costs per square foot by the total square footage of your house. To find out the building rates in your area, consult your local builders association or real estate appraiser.

Factors that will determine the cost to rebuild your home:

  • local construction costs
  • the square footage of the structure
  • the type of exterior wall construction — frame, masonry (brick or stone) or veneer
  • the style of the house (ranch, colonial)
  • the number of bathrooms and other rooms
  • the type of roof
  • attached garages, fireplaces, exterior trim and other special features like arched windows.

Also be sure to check the value of your insurance policy against rising local building costs each year. Ask your insurance agent or company representative about adding an “INFLATION GUARD CLAUSE” to your policy. This automatically adjusts the dwelling limit when you renew your policy to reflect current construction costs in your area. Also, be sure to increase the limit of your policy if you make improvements or additions to your house.

How to save money on homeowners insurance

SHOP AROUND

Friends, family, the phone book and Internet are some of the sources you can use to find homeowners insurers. Get a wide range of prices from several companies. But don’t consider price alone. The insurer you select should offer both a fair price and excellent service. Quality service may cost a bit more, but you buy insurance in case you need to make a claim, so it’s important to get a company with a good reputation. Talk to a number of insurers to get a feeling for the type of service they give. Ask them what they would do to lower your costs. Check the financial ratings of the companies with AM Best or Standard and Poor’s.

RAISE YOUR DEDUCTIBLE

Deductibles are the amount of money you have to pay toward a loss before your insurance company starts to pay. Deductibles on homeowners policies typically start at $250. Increase your deductible to

$ 500 — save up to 12 percent
$1,000 — save up to 24 percent
$2,500 — save up to 30 percent
$5,000 — save up to 37 percent

BUY YOUR HOME AND AUTO POLICIES FROM THE SAME INSURER

Some companies that sell homeowners, auto and liability coverage will take 5 to 15 percent off your premium if you buy two or more policies from them.

WHEN YOU BUY A HOME…

Consider how much insuring it will cost. A new home’s electrical, heating and plumbing systems and overall structure are likely to be in better shape than those of an older house. Insurers may offer you a discount of 8 to 15 percent if your house is new. Check the home’s construction: In the East brick is better, because of its resistance to wind damage, and in the West frame is better, because of its resistance to earthquake damage. Choosing wisely could cut your premium by 5 to 15 percent. Avoiding areas that are prone to floods can save you about $400 a year for flood insurance. Homeowners insurance does not cover flood-related damage. The closer your house is to firefighters and their equipment, the lower your premium will be.

INSURE YOUR HOUSE, NOT THE LAND

The land under your house isn’t at risk from theft, windstorm, fire and the other perils covered in your homeowners policy. So don’t include its value in deciding how much homeowners insurance to buy. If you do, you’ll pay a higher premium than you should.

IMPROVE YOUR HOME SECURITY AND SAFETY.

You can usually get discounts of at least 5 percent for a smoke detector, burglar alarm, or dead-bolt locks. Some companies offer to cut your premium by as much as 15 or 20 percent if you install a sophisticated sprinkler system and a fire and burglar alarm that rings at the police station or other monitoring facility. These systems aren’t cheap and not every system qualifies for the discount. Before you buy such a system, find out what kind your insurer recommends and how much the device would cost and how much you’d save on premiums.

STOP SMOKING

Smoking accounts for more than 23,000 residential fires a year. That’s why some insurers offer to reduce premiums if all the residents in a house don’t smoke.

SEEK OUT DISCOUNTS FOR SENIORS

Retired people stay at home more and spot fires sooner than working people and have more time for maintaining their homes. If you’re at least 55 years old and retired, you may qualify for a discount of up to 10 percent at some companies.

SEE IF YOU CAN GET GROUP COVERAGE

Alumni and business associations often work out an insurance package with an insurance company, which includes a discount for association members. Ask your association’s director if an insurer is offering a discount on homeowners insurance to you and your fellow graduates or colleagues.

STAY WITH AN INSURER…

If you’ve kept your coverage with a company for several years, you may receive special consideration. Several insurers will reduce their premiums by 5 percent if you stay with them for 3 to 5 years; by 10 percent if you remain a policyholder for 6 years or more.

COMPARE THE LIMITS IN YOUR POLICY TO THE VALUE OF YOUR POSSESSIONS AT LEAST ONCE A YEAR

You want your policy to cover any major purchases or additions to your home. But you don’t want to spend money for coverage you don’t need.

LOOK FOR PRIVATE INSURANCE FIRST

If you live in a high-risk area, one that is especially vulnerable to coastal storms, fires, or crime, and have been buying your homeowners insurance through a government plan, you should check with an insurance agent or company representative. You may find that there are steps you can take that would allow you to buy insurance at a lower price in the private market.

Private mortgage insurance

Private mortgage insurance is a type of insurance that helps protect the mortgage company against losses due to foreclosure. This protection is provided by private mortgage insurance companies and allows mortgage companies to accept lower down payments than would normally be allowed.

Private mortgage insurance also enables mortgage companies to grant loans that would otherwise be considered too risky to be purchased by third party investors like the Federal National Mortgage Association (FNMA) and the Federal Home Loan Mortgage Corporation (FHLMC). The ability to sell loans to these investors is critical to maintaining mortgage market liquidity, which in turn, allows mortgage companies to continue originating new loans.

PMI Cancellation

Mortgage insurance can usually be canceled by the home buyer after he or she has at least 20 percent equity in the home. Borrowers should contact their servicer to find out the procedure for canceling mortgage insurance when they think they have achieved 20 percent equity. Guidelines for canceling private mortgage insurance are set by investors. Typically, investors will require an appraisal on the property. The servicer can recommend qualified local appraisers.

PMI Payment Options

Private mortgage insurance can be paid on either an annual, monthly or single premium plan. Premiums are based on the amount and terms of the mortgage and will vary according to loan-to-value ratio, type of loan, and amount of coverage required by the mortgage company.

Under an annual plan, an initial one year premium is collected up front at closing, with monthly payments collected along with the mortgage payment each month thereafter. Monthly plans allow a borrower to pay only 1 or 2 months worth of premium at closing, and then on a monthly basis along with the regular mortgage payment. Under a single premium plan, the entire premium covering several years is paid in a lump sum at closing. Typically, homebuyers choose to add the amount of the mortgage insurance premium to the loan amount. By doing this, homebuyers can reduce their closing costs and increase their interest deduction.

PMI vs FHA MIP

Although the insurance protection concept is similar, there are differences between private mortgage insurance and FHA mortgage insurance. FHA insurance is a government-administered mortgage insurance program that does have certain restrictions. FHA has maximum regional loan limits that are lower than those with private mortgage insurance. FHA may be more expensive, take longer to receive approval, and have fewer payment plan options. FHA insurance lasts for the life of the loan, unlike private mortgage insurance which is cancelable in most circumstances. FHA is a good choice for some borrowers with credit history problems that might need special assistance.

Title Insurance

A policy of title insurance is a contract of indemnity between the insured and the insuring company relating to the title to the land described in the policy, protecting the insured against loss of damage by reason of defects, liens or encumbrances of the insured title existing at the date of the policy and not expressly excepted from its coverage.
The policy is issued after a complete search and examination of the public records and shows the condition of the record title, including any money obligations outstanding against the property, easements and other matters which may affect the rights of ownership, possession and use of the property.

Title insurance protects the “record” title, insuring it is good subject only to the exceptions expressly set out in the policy. lt also insures against certain matters which do not appear of record, such as forgery, identity of parties, incompetence of former owners, interest of missing heirs, and status of individuals not having the “right” to sell property.

There are different types of policies. Owners policies are issued to real estate owners. Purchasers policies are issued to purchasers of real estate under contract. Mortgage policies are issued to mortgage companies. In addition there are several other special forms of policies. There is a type of policy to meet the requirements of almost any form of real estate transaction.

Title Insurance FAQ

What Protection Does Title Insurance Give?

It insures that the “record” title, is good subject only to the exceptions expressly set out in the Policy. lt also insures against certain matters which do not appear of record, such as forgery, identity of parties, incompetence of former owners, interest of missing heirs, and status of individuals not having the “right” to sell property.

What Risks Are Not Covered?

The standard owners policy and standard mortgage policy are based on public records of the recording district in which the land is located. It does not insure against matters which would only be disclosed by actual inspection or survey of the property. It does not insure against certain matters not shown by the public records such as unrecorded easements, liens or money obligations; unrecorded utility rights of way, public or private roads, community driveways and other types of encumbrances, or against the rights or claims of persons in possession of the property which are not shown by the public records.

Can Protection Be Obtained Against Matters Not of Record?

Upon application, the issuing company may specially cover matters which are disclosed by a physical inspection and/or a survey of the property, subject to any exceptions which the inspection will determine to be proper. An additional risk premium is charged for this type of coverage. Insurance of this kind is called ‘extended coverage’.

Are There Different Kinds of Policies?

Yes. Owners Policies are issued to real estate owners. Purchasers Policies are issued to purchasers of real estate under contract. Mortgage Policies are issued to mortgage companies. In addition there are several other special forms of policies. There is a type of policy to meet the requirements of almost any form of real estate transaction.

When Is the Policy Issued?

An owner’s policy protects only the owner while a Mortgage policy protects only the holder of the mortgage on the property. Separate policies are required to protect both interests. Special rates are available when both Owner’s and Mortgage policies are applied at the same time.

The Owners Policy of title insurance usually is issued after the deed to the buyer is ‘delivered’ and recorded. A Purchasers Policy is usually issued after the contract has been executed by both parties or after the signed contract has been recorded. The mortgage policy of title insurance is usually issued after the mortgage or deed of trust has been properly executed and recorded.

If I Was Insured When I Bought the Land, Why Should I Have It Re-Issued to My Purchaser When I Sell?

The coverage of your policy is against all matters that appeared of record up to the date of issuance of your policy. Since that time many documents may have been recorded, some of which may affect the title to your land. Taxes and assessments may have accrued and be unpaid. There may have been actions in court affecting your title. The purchaser is entitled to have full information and protection as to the condition of the title right up to the date of his purchase. In addition, there may be matters of record which would prevent either the seller or buyer from selling, buying, or mortgaging land until such matters have been cleared. These items include such things as federal tax liens, judgements, incompetencies, divorce actions and other conditions which the title search may disclose.

How Are Premiums for Title Insurance Determined?

Title Insurance Premiums are determined by the amount and type of coverage provided. Unlike other insurance premiums, however, the title insurance premium is paid only once as the policy is effective for so long as title or “ownership” remains in the name of the insured, or his heirs or devises. Rates are filed with the insurance commissioner who regulates the activities of title insurers.

Title Insurance Protection

Title Insurance insures that the “record” title is good subject only to the exceptions expressly set out in the policy. lt also insures against certain matters which do not appear of record, such as forgery, identity of parties, incompetence of former owners, interest of missing heirs, and status of individuals not having the “right” to sell property.

The standard owners policy and standard mortgage policy are based on public records of the recording district in which the land is located. It does not insure against matters which would only be disclosed by actual inspection or survey of the property. It does not insure against certain matters not shown by the public records such as unrecorded easements, liens or money obligations; unrecorded utility rights of way, public or private roads, community driveways and other types of encumbrances, or against the rights or claims of persons in possession of the property which are not shown by the public records.

Upon application, the issuing company may specially cover matters which are disclosed by a physical inspection and/or a survey of the property, subject to any exceptions which the inspection will determine to be proper. An additional risk premium is charged for this type of coverage. Insurance of this kind is called extended coverage.

Issuance of Title Insurance Policy

An owner’s policy protects only the owner while a mortgage policy protects only the holder of the mortgage on the property. Separate policies are required to protect both interests. Special rates are available when both owner’s and mortgage policies are applied at the same time.

The owners policy of title insurance usually is issued after the deed to the buyer is delivered and recorded. A purchasers policy is usually issued after the contract has been executed by both parties or after the signed contract has been recorded. The mortgage policy of title insurance is usually issued after the mortgage or deed of trust has been properly executed and recorded.

The coverage of your policy is against all matters that appeared of record up to the date of issuance of your policy. Since that time many documents may have been recorded, some of which may affect the title to your land. Taxes and assessments may have accrued and be unpaid. There may have been actions in court affecting your title. The purchaser is entitled to have full information and protection as to the condition of the title right up to the date of his purchase. In addition, there may be matters of record which would prevent either the seller or buyer from selling, buying, or mortgaging land until such matters have been cleared. These items include such things as federal tax liens, judgements, incompetencies, divorce actions and other conditions which the title search may disclose.

Flood Insurance

Flooding is not covered by a standard homeowners insurance policy.

To determine if you need flood insurance, ask your insurance professional, mortgage company or neighbors about the flood history in your area. If there is a potential for flooding, you should consider purchasing a policy that covers the structure and your personal belongings.

Flood insurance can be purchased from an insurance agent or company under contract with the Federal Insurance Administration (FIA), part of the Federal Emergency Management Agency (FEMA). Flood insurance is only available where the local government has adopted adequate flood plain management regulations under the National Flood Insurance Program (NFIP).

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