Home Insurance Issues
It’s important to keep insurance in mind throughout the home buying process. Most lenders won’t provide a mortgage without insurance coverage. Your insurance
company or agent, together with your realtor, can help you get what you want – a
good home that is properly protected.
EVEN BEFORE YOU START LOOKING FOR A HOME
Put yourself in the best possible position to be able to afford a home, receive
the lowest possible mortgage rate and get insurance for your new house. This
takes advance preparation on your part.
Check your credit rating
Good credit helps you in many ways, including getting a mortgage at a good rate.
Depending on the state and the insurer, it may also help you save money on your
homeowners insurance. Get a copy of one or all of your credit reports. Make sure
they are accurate and report any mistakes immediately. The credit report helps
you see how your credit standing compares to others. If your credit is not as
good as it should be, begin to improve it immediately.
Check your home insurance claims-filing history
Get a copy of your loss history report, such as a CLUE report from ChoicePoint
or an A-PLUS report from ISO. This is a record of home insurance claims you have
filed. If you have not filed any insurance claims in the past five years, you
will not have a loss history report. The better your claim record, the less you
may pay for insurance. A good claims record can also be important if you are
selling the home you are currently living in. However, a past claim does not
have to be a problem; the resulting repairs or improvements, if done properly,
can make a property more attractive to buyers and insurers.
If you are currently renting, it’s important to have insurance for your personal
property. Your landlord’s coverage will not cover the things you own. If you
haven’t owned a home before, it might be helpful to have a history of insurance
when you go to buy your first home.
As you look at homes, remember that characteristics of the house (where it is,
how it's constructed and the kind of shape it’s in) can send your insurance
rates up or down.
Construction of the house
If you plan to live near the Atlantic or Gulf coasts, consider a brick home
because it is more resistant to hurricanes. If you are buying in a seismically
active region, look for newer homes built to current codes, or older homes that
have been bolted to their foundations. They are better able to withstand
Age of the house
Older homes sometimes have features such as plaster walls, ceiling molding and
wooden floors that could be costly to replace. Such special features may raise
the cost of insurance. Also, an older home that has been updated to comply with
current building codes is typically less expensive to insure than an older home
that is not up-to-date.
Condition of roof and home
If you are considering a “fixer upper,” you may pay more for insurance until
clear improvements are made. In particular, check out the condition of the roof. A new roof in good repair will be attractive to insurers and will save you money
as well as aggravation.
Plumbing, heating and electrical systems
These systems can wear out, become unsafe with age or become dated as safer
technologies are introduced. Recent upgrades make your home safer and less
likely to suffer fire or water damage.
Homes equipped with smoke, fire and burglar alarm systems that alert an outside
service may get sizeable discounts. Strong doors, dead bolt locks and window
locks may also reduce insurance costs.
Pool, wood burning stove, etc.
You will need higher property and liability coverage if you are buying a home
with features such as a pool or a wood burning stove. In the case of a pool,
consider getting additional coverage, such as an umbrella or excess liability
Quality and proximity of the fire department
Homes near a fire station, those with a hydrant close by and those located in
communities with a professional rather than volunteer fire department will cost
less to insure.
Location, location, location
Homes near the coast will be more expensive to insure because the risk of
hurricane, wind or water damage is greater. In many states, you will pay the
first few thousand dollars in damage before your insurance kicks in. You also
need to think about the threat of floods or earthquakes. You will need separate
insurance for these risks and it can be costly. Also, around the country, there
are high-risk areas vulnerable to hurricanes, brush fires or crime that might
not qualify for private insurance. To make insurance available, there are
state-sponsored Fair Access to Insurance Requirement (FAIR) Plans. FAIR Plans,
however, can be expensive and provide less coverage.
PLACING A BID
You have looked at a number of properties and are narrowing your search to a few
homes. Now you need to get more specific information on the house and its
Check the house’s loss history report
Ask the current homeowner for a copy of the house’s insurance loss history
report. This will provide information regarding claims filed during the last
five years and answer two questions that any savvy homebuyer should ask: Are
there any past problems in the home? If damage has occurred, was it properly
repaired? Prior claims are not barriers to getting insurance, but you should
know the history of the home before you go to closing.
Get the house inspected
A thorough inspection of the home is very important. The inspector should: check
the general condition of the home; show you where potential problems might
develop; double-check that past problems have been repaired; and suggest
upgrades or replacements that may be needed. If a house has been
well-maintained, you should have no trouble getting insurance. However, if the
inspector raises questions, your insurance company will as well. In particular,
have the inspector check for water damage, termites and other types of
infestation. Special attention should be paid to the electrical system, septic
tank and water heater. Find out if there is an underground oil storage tank, as
many insurers will not provide policies for homes that have one.
Contact your insurance professional
Don’t wait until the last minute to think about insurance. Ask your current
insurance professional if the house will qualify for insurance and get an
estimate of the premium. The sooner you act, the smoother the process will be.
If you do not have an insurance agent or company representative, get
recommendations from family, friends or co-workers. Select someone you know and
trust, as he or she will be an advisor for many years.
Shop around for the best coverage
Most people spend months looking for a house, but only spend a few minutes
insuring it. Insurance companies sell insurance in different ways – some through
their own agents, others through independent agents or brokers and still others
directly by phone or over the internet. Select the arrangement that you are most
comfortable with. Get the names of several highly regarded insurers. The higher
the financial rating, the better prepared they will be if a real disaster
strikes. Then compare prices – it could cut hundreds of dollars off the cost of
PURCHASING THE HOUSE AND INSURANCE
Congratulations, you are set to purchase your new home. Now you want to be sure
you are getting the right insurance coverage at the lowest possible price.
Take the highest deductible you can afford
The higher the deductible, the lower the premium. Since most people only file a
claim every eight to ten years, you will save money over time and preserve your
insurance for when it’s really needed.
Ask about available discounts for:
Multi-policy (home, car or other policies with the same company)
Burglar and fire alarms that alert an outside service
Deadbolt locks and fire-safe window grates
55 years old and retired
Upgrades to plumbing, heating and electrical systems
Earthquake retrofitting to make the home safer
Get enough insurance to:
Completely rebuild the house in the event it is destroyed by fire or other
Replace everything in the house.
Protect your liability in case someone is injured on your property and sues you.
Ask about additional coverage such as:
Replacement cost for possessions
Extended or guaranteed replacement cost for the structure
Building code upgrades
Sewer and drain back-ups
Umbrella coverage for a pool or other high-risk items
Special riders for jewelry, collectibles and expensive items
Flood, earthquake and windstorm risk
Damage caused by flooding and earthquakes is not covered by standard homeowners
insurance policies. Instead, homeowners will need to pay an additional premium
for coverage that is provided through the government’s National Flood Insurance
Program (NFIP). To get flood insurance, your community must participate in the NFIP program. Policies for coastal properties will have a sizeable windstorm
deductible, which means the homeowner may be responsible for thousands of
dollars of damage before insurance kicks in. It pays to know what is in your
policy. Earthquake insurance is offered by private insurance companies. In
California, coverage is available through the California Earthquake Authority, a
state program, as well as the private market. It can be expensive and comes with
a high deductible.
AFTER YOU PURCHASE YOUR NEW HOME
Properly maintain the house
Maintain your home as you would your car. Every year, there are important things
you should do to reduce the chance that you will experience water damage, fire
or other insured loss. Insurance does not pay for routine maintenance or damage
resulting from neglect. The cost for proper care should be calculated into your
overall budget. It’s your responsibility to be the “risk manager” for your home.
If you do your part to reduce insurance losses, not only will your home be
safer, it will also save you money on your insurance bill.
Keep insurance up-to-date
Let your insurer know about alterations, additions and improvements to your
home. Major purchases and lifestyle changes such as a marriage or divorce should
trigger a call to your insurance professional. This way, you can maximize your
insurance dollars by not being either under- or over-insured.