Insurance FAQs for First-Time Home Buyers

Buying home insurance for the first time is overwhelming, especially if you’re trying to go it alone.

Before shopping for coverage, review these common insurance questions to make sure you’re armed with the knowledge to find the best policy for your needs.

Do I need a policy before buying a home?

Technically, no.

Most states require drivers to possess auto insurance before taking the car off the dealer’s lot. But home insurance is different. You can legally own a home sans insurance.

However, if you need a loan to buy your home, your lender will likely require you to purchase home insurance as a way to protect its investment.

What coverages are included?

Standard home insurance policies typically include coverage for the structure of your home, its contents, liability, other structures (such as a toolshed), and additional living expenses. Let’s break these down.

Structure: If your home is damaged or destroyed by a covered peril and needs to be repaired or rebuilt, your insurance can help pay for these expenses. Structure coverage is not the same as the amount you paid for your home. You need to set your structure coverage for the amount it would take to rebuild your home from the ground up.

Contents: This coverage can kick in if your belongings are damaged or destroyed. It’s typically set between 50 and 70 percent of your home’s structural coverage. If you have high-value items, such as an extensive jewelry collection or rare pieces of art, there will likely be a cap on the repair/replacement value (between $1,000 and $2,000). To get more coverage for high-value items, you can add a rider policy to your home insurance.

Liability: If someone is injured on your property, the liability portion of your insurance policy can help pay for medical, rehabilitation, and/or funeral expenses, as well as legal fees in the event that the injured party sues you. Liability is typically set at $100,000 worth of protection. However, it’s wise to set your coverage between $300,000 and $500,000 — especially if your home includes attractive nuisances, such as a pool or trampoline — as medical and legal costs can add up rapidly.

Other structures: If your home has a detached garage or shed that is damaged or destroyed by a covered peril, your insurance can help pay to repair or rebuild it.

Additional living expenses: In the event that your home is destroyed and needs to be rebuilt, this coverage can help pay for living expenses, such as hotel and food bills for the duration of time that you’re displaced. Check with your insurer to see if this protection only covers you and your family for a specified amount of time.

What are covered perils?

Standard home insurance policies can cover damage caused by fire, windstorms, hail, lightning, theft, vandalism, explosions, and riots. Typically, water damage, such as that from freezing and bursting pipes, is also covered.

However, damage resulting from floods or earthquakes is not covered. Those types of natural disasters require separate policies and should be purchased if you live in a high-risk area, such as near a body of water or in California, where floods and earthquakes, respectively, are common.

How do I know how much coverage I need?

Complete a home inventory. This is a complete list of everything you own and each item’s value. Home inventories should include photos or video of all your possessions and the amount you paid for them — if you have the receipts, that’s even better.

Make multiple copies of the list and keep it in various safe locations, such as a safety deposit box. Having this inventory will allow your insurance agent to accurately recommend the amount of coverage you need, and will help get the ball rolling quickly if you need to file a claim.

What determine how much I pay?

When determining how much your insurance policy will cost, providers take into account:

• Your credit score.
• Claims history, both your own and the claims history for the area in which you reside.
• The location of your home.
• The age of your home.
• The costs associated with rebuilding your home.
• Your proximity to a fire department and hydrant.
• Whether you own pets or not. Owning a dog, especially certain breeds, means you’ll need more liability coverage.
• The coverages you select.

How can I save money on insurance?

There are a few tricks to saving money on your monthly home insurance premiums, but not all are overnight fixes.

• Discounts. Most insurance providers offer discounts for policyholders. Bundling multiple policies, such as home and auto, with the same provider is one of the simplest ways to save on multiple policies. Providers also usually offer discounts for safety features, such as security systems. Equipping your home with these additional features could help you keep more money in your wallet each month.
• Raise your deductible. Raising your deductible (the amount you agree to pay toward a claim before insurance kicks in) will result in lower premiums. However, don’t set your deductible so high that it would cause you financial hardship if disaster strikes. For example, if you can’t afford to pay $1,000 out of pocket at any given time, set a lower deductible.
• Improve your credit score. Most insurance providers use credit score as an indicator of how likely you are to file a claim. Studies have shown that those with low credit scores were more likely to file claims than those with high credit scores, who could afford to tackle some repairs or replacements on their own. Improving your credit score can ultimately decrease your premium payments, as you’ll become less of a risk to insure.

How do I choose a provider?

Shop around. All insurance carriers are different in terms of coverage and cost. The best way to find the right provider for you is to get quotes from several companies and compare them rather than making a rash decision.


Source: Zillow Porchlight, Shannon Ireland
http://www.zillow.com/blog/faqs-buying-home-insurance-201302/

Down Payment Insurance: Smart Protection or Total Waste of Money?

The housing crash of 2008 shattered the long-held notion that a home is a rock-solid, inviolable investment in your future. With home prices climbing steadily again to what seems like improbable (and possibly unsustainable) heights in some markets, many fear that we’re in another housing bubble—one that could burst, taking their life savings with it.

That’s why buyers may see the appeal in a new product from Dallas-based startup ValueInsured: +Plus, down payment insurance for homeowners. In a nutshell: It offers protection where protection didn’t previously exist.

However, the jury is still out on whether it’s a smart (additional) investment or the equivalent of feeding cash directly into the septic system.

It works like this: New homeowners can insure down payments of up to 20% for up to $200,000, paying a one-time premium when they close. Costs depend on how much they’re insuring and what state they’re in.

Then if home prices have fallen and these still relatively new homeowners have to move—say for a new job or to a bigger place after having triplets—ValueInsured will make sure they’re not out the difference.

Customers in all 50 states and Washington, DC, can get the insurance directly through the company or when they secure a mortgage through Amalgamated Bank. Buyers can also have their premiums included in their Amalgamated mortgages using a lender credit to pay the premium.

For example, a buyer who insures a 10% down payment of $25,000 on a $250,000 home in Ohio would pay a one-time fee of $1,455.52, according to ValueInsured’s website. If the buyer insured a 20% deposit of $50,000, it would cost $1,837.50. The costs of premiums vary by state.

“Nobody knows where life is going to take them,” says Joe Melendez, CEO of ValueInsured. “It’s about empowering a home buyer to purchase a home knowing that the money they’re putting into that home is insured in the event that they need to move and the value of their home is down.”

But if it sounds too good to be true… The insurance product, launched in the fall, comes with a few significant limitations. Homeowners have to wait two years before they can file a claim. And it’s good for up to only seven years after the day they closed. Seven years and one day? You’re out of luck.

The home must be a primary residence—the owners can’t be renting it out. And you won’t get your money back if you’re foreclosed upon (yikes) or if your home is seized under eminent domain (double yikes). Don’t even think about selling to a family member, either.

And again, this is down payment insurance—the policy doesn’t cover any upgrades you make, or costs related to the purchase or sale of the home.

The biggest catch: Home values are measured by a federal housing index for each state instead of how much the price for an individual residence declined. Those who buy the insurance will only receive a check for whatever is less: their down payment, their lost equity, or the drop in the index.




Here’s the problem: Take the example above, where you lose $20,000 (6.7%) on the home sale. If your state’s index doesn’t show a loss, then you won’t get a cent. Or in another scenario, say you lose that same $20,000 on the sale, but the state index is only down 3%. According to the state calculation, your home has lost only $9,000 in value, and that’s the amount that you’d get back.

“There’s just a lot of red flags here for me,” says Bob Hunter, director of insurance at the Consumer Federation of America, a Washington, DC–based, national coalition of about 350 pro-consumer groups. He is familiar with +Plus, although he has not specifically looked at a policy.

“I warn people not to buy new products, because they’re usually higher-priced,” says Hunter, a former Texas insurance commissioner. That’s because insurers don’t know on new products how much they’ll wind up reimbursing customers. And “they typically put in a lot of exclusions and other limitations to hold down their possible payouts.”

Hunter also worries that the five-year period in which homeowners can submit claims is too limited.

Protecting one’s down payment may indeed appeal to those living in turbulent real estate markets that got walloped when the housing bubble burst, says Michael Barry, a spokesman at the Insurance Information Institute, an industry-funded educational organization in New York.

Here’s the problem: Take the example above, where you lose $20,000 (6.7%) on the home sale. If your state’s index doesn’t show a loss, then you won’t get a cent. Or in another scenario, say you lose that same $20,000 on the sale, but the state index is only down 3%. According to the state calculation, your home has lost only $9,000 in value, and that’s the amount that you’d get back.

“There’s just a lot of red flags here for me,” says Bob Hunter, director of insurance at the Consumer Federation of America, a Washington, DC–based, national coalition of about 350 pro-consumer groups. He is familiar with +Plus, although he has not specifically looked at a policy.

“I warn people not to buy new products, because they’re usually higher-priced,” says Hunter, a former Texas insurance commissioner. That’s because insurers don’t know on new products how much they’ll wind up reimbursing customers. And “they typically put in a lot of exclusions and other limitations to hold down their possible payouts.”

Hunter also worries that the five-year period in which homeowners can submit claims is too limited.

Protecting one’s down payment may indeed appeal to those living in turbulent real estate markets that got walloped when the housing bubble burst, says Michael Barry, a spokesman at the Insurance Information Institute, an industry-funded educational organization in New York.

“[But] I’d be reluctant to cut another check at closing,” he says. “This is just one more additional expense.”

Despite the caveats, the concept of down payment insurance is alluring to real estate agents such as Deb Counts-Tabor.

Bidding wars have become common in the white-hot Portland, OR, market where she works, and desperate buyers, rattled by the limited number of homes for sale, will often pay well over the list price.

“People are going $10,000, $20,000, $30,000 over the asking price and waiving their appraisals because they want the house,” says Counts-Tabor, of Oregon Realty. But “if the market adjusts before they can pay that down, they end up underwater.”

It might make sense for buyers who worry they may have overpaid, she says.

Denver real estate agent Kristal Kraft would agree. Two of the properties she recently represented sold for nearly $30,000 more than their list prices as Denver’s market becomes increasingly competitive.

“It would give buyers peace of mind,” says Kraft, of the Berkshire Group. “They can be assured they can get some of their money back.”

Source: Realtor.com, Clare Trapasso
http://www.realtor.com/news/trends/down-payment-insurance/?iid=rdc_news_hp_carousel_theLatest

9 hidden costs that come with buying a home

Buying a home isn't just a 20% down payment and a monthly check for the mortgage.

There are a mountain of hidden costs — from closing fees to taxes — that can add up to more than $9,000 each year, real estate marketplace Zillow estimates — and that number will only jump if you live in a major US city.

Business Insider spoke to Zillow's chief economist, Svenja Gudell, about the three big unavoidable costs — homeowners' insurance, property taxes, and utilities — and other common costs that are often overlooked.

If you're considering buying a home, be mindful of these expenses when establishing your budget, Gudell says:

Source: Business Insider, Dylan Roach and Kathleen Elkins

http://www.businessinsider.com/hidden-costs-of-buying-a-home-2015-10 

Does your homeowner's insurance cover water damage?

Many a distraught homeowner has had to deal with water damage only to find out that their home insurance policy does not cover the damage. Here's how to make certain that you are not caught in that position.

Avoid water damage

Proper home and appliance maintenance is the best prevention to water damage. Have your heating, cooling and water heater serviced regularly. Don't leave an appliance such as a dishwasher or washing machine running while you're out of the house for a long period. Check occasionally under the sinks for leaks and that the pipes are dry. Stay in the room while filling a bathtub, it fills faster than you think.

Get regular inspections of plumbing and drain systems. Whenever the plumber is at your home, ask him or her to check on all the plumbing. Turn off the water supply to outdoor spigots before the first freeze of winter. Make certain all drains are clear and operating.

Repair any leak promptly. Even minor drips can grow into bigger problems, possibly hiding pipe leaks or worse, plumbing issues behind a wall. Mold and mildew issues usually stem from undiscovered and unrepaired leaks because it needs moisture to grow.

Carefully monitor your water bill for unusual spikes. You could have an underground pipe leak that will cost you thousands of dollars to repair. If the leak occurs on your property, it's your obligation to fix, not the city's water supplier. And don't expect the city to reduce your water bill because you unintentionally used too much water.

Get enough insurance

Don't be satisfied with basic or minimum coverage insurance contracts. Your idea of basic protection may differ broadly from your insurer. Many insurance providers charge extra for more complete coverage, and it can be surprising what is and isn't covered.

Read your policy carefully to make certain that your home has the coverage necessary for all kinds of situations, from a child flushing a toy down the toilet to a tree falling on your roof during a storm. Severe problems such as a sewer backup may not be covered and may require extra coverage.

Source: RealtyTimes, Blanche Evans
http://realtytimes.com/consumeradvice/homeownersadvice1/item/39419-20151022-does-your-homeowners-insurance-cover-water-damage

Don't rely on bad advice on skipping earthquake insurance

I'm here is California folks, and so are the people I help buy or sell their home. As much as I love the Silicon Valley, one thought that always hangs is my mind is the possibility of "the big one." Scientist have been saying for years that this area due for one. The valley sits between the San Andreas and Hayward fault and either one of them can go off at any time. So I always advise my clients to get earthquake insurance if their policy doesn't already cover it.



Don't rely on bad advice on skipping earthquake insurance

How Credit History Affects Home Insurance Premiums

In this day and age, it is important to manage and guard your credit score like a hawk. Not only is it important for obtaining a home loan, it is important for getting lower insurance premiums as Shannon Ireland from the Zillow blog points out. However, this rule doesn't apply in California and a few other states that make the practice of using a consumer's credit score in determining an insurance premium illegal. 


How Credit History Affects Home Insurance Premiums

What you need to know about renters insurance

Homeowners get homeowners insurance, but many renters I know don't get renters insurance. I know rents are rather high here in the Silicon Valley, but renter's insurance doesn't cost much.

Renter's Insurance Isn't Just for Possessions | RISMedia's Home Update