Michele Lerner, Washington Post | April 21, 2023
Educate yourself about what’s covered and what’s not. You may be surprised.
One of the least exciting parts of buying a home is also one of the most essential: homeowner’s insurance. If you’re borrowing money to buy a home — and most buyers are — your lender is certain to remind you that you need an insurance policy to get a mortgage.
Before you go online and buy the cheapest policy you can find, it’s smart to educate yourself about some surprising things that homeowner’s insurance covers — and some things that it doesn’t.
“Every homeowner is different and will have slightly different needs for their insurance policy,” said Michelle Tennant, vice president of product management for Erie Insurance, headquartered in Erie, Pa. “It can be confusing, especially for a first-time home buyer, to know how much coverage they need and if they should get any optional coverage.”
The best source of individualized guidance is an independent insurance agent who will check out the offerings of several insurance companies for you, said Michael Giusti, senior writer and analyst for InsuranceQuotes.com in New Orleans.
“Not every independent insurance agent can shop with every insurance company, so it’s smart to ask which companies and how many companies they work with,” Giusti said. “They get paid by the insurance company, not you, so it won’t cost you extra money to use an agent.”
Insurance companies also have their own agents who can provide advice.
“Shopping among several companies is especially important now because the more severe storms in some places and inflation have caused homeowner’s insurance rates to increase,” Giusti said.
Cover the cost to replace your home
A lender may require at least enough insurance to make sure that the mortgage is paid off if the home is declared a total loss, but that’s usually not enough to replace the home.
“We recommend ‘guaranteed replacement cost’ insurance that would rebuild your house to the way it was if the entire structure is destroyed by a fire or flood or other disaster,” Tennant said. “If you just buy a policy for $300,000 of coverage without this guarantee and your home will cost $350,000 to replace, you would have to come up with that extra $50,000.”
You don’t need to insure the ground under your home, so the amount of coverage won’t necessarily be the same as your home’s market value, Giusti said.
“An agent can work with you to figure out your replacement cost based on the size of your home, the location and the materials used,” said Craig Eagleson, president and chief revenue officer of Incenter Insurance Solutions, a provider of property and casualty insurance headquartered in Fort Washington, Pa. “Many lenders want to see documentation of the research that goes into your estimated replacement cost.”
Read the rest of the article at the Washington Post