Homeowners Insurance Info for First-Time Home Buyers

As you begin looking for your first home, you need to learn a lot of stuff. One of those things you really need to know about is "homeowners insurance." You need to understand what it is and what it costs and be prepared when the time comes.

When you go to the closing on your first home, the mortgage provider you've selected for your mortgage is going to insist that you have a home insurance policy in force on your new home on or prior to closing day. So, you might as well know what is involved up-front.

Here are some of the major things you should know about homeowners insurance policies.

Getting a homeowners insurance policy that meets your needs and your affordability is harder today than it was just a few years ago, mostly because of the recent recession and housing bust here in Georgia. You may have to shop around to get the kind of coverage you want at the best price. You should definitely get multiple quotes to compare the cost from various providers. Your Realtor and/or your mortgage provider may be able to point you to various insurers who offer coverage in your area.

A couple of definitions:

• The Homeowners insurance "premium" is the amount you pay for coverage.
  
• The "deductible" is what you will pay of your pocket in the event of a claim, before the insurance company will pay anything.
  

Insurance premiums and deductibles are closely related. You can usually reduce your premium fairly substantially by raising your deductible amount. The Insurance Information Institute says “If you can afford to raise your deductible to $1,000, you may save as much as 25% on your premiums.” Remember, however, that if you choose a higher deductible, you need to be sure you can afford to pay that amount as your own share of the expenses for any required repairs.

Most standard homeowners insurance policies do not cover flood damage. So if you live in an area that’s prone to flooding, you should get a separate policy (or a "rider") for flood insurance. You may also want to ask your Realtor either not to shoew you homes in "flood plains" at all or to, at least, inform you when a home you are looking at requires flood insurance as a condition for your getting a mortgage.

When choosing a policy, you can also generally choose between replacement cost and actual cash value.

• Replacement Cost coverage gives you more protection than cash value, because it covers the cost of replacing items even if they cost more than when you bought them
  
  
• Actual Cash Value (often abbreviated to ACV) only covers items up to the amount you paid for them or their value as of the time of the claim.
  

Obviously, replacement cost policies cost more than actual cash value policies but if you can afford it, a replacement cost policy may be your best choice. After all, there is little sense in having a policy that will not cover the full cost of actually repairing or replacing the damage minus just your deductible.

If you own a pet, especially a big dog or a dog of certain breeds, you need to inform your prospective insurer of that fact when asking for a quote. Some companies charge higher rates, exclude any damage caused by the dog, or refuse to offer insurance to oweners of certain types of dogs. Do not think of forgetting to mention the pet when applying for coverage. If and when you have a claim, the company may rfuse to pay it because you falsified your application. I'm sure you love your pet. Just be honest about it and accept that some insurers are more strict than others about this topic.

Finally bear in mind that your home may burn down or be damaged but the land it sits on will normally be spared. So, ask your Realtor to tell you about what lots sell for in the neighborhood you're buying a home in and deduct that amount from the price you are paying for the home you are buying. Be sure also to tell your prospective insurer what value you have put on the land to make sure he or she agrees that that is a reasonable value to deduct from the purchase price in sizing the coverage you buy.

You can get quotes for homeowner's insurance policies on the Internet which will save you time and energy. This is a great way to compare policies from multiple insurance companies. But, when the time comes, you may want to buy your policy locally so you know someone you can go to from time to time with any questions you may have.

In any case, be aware that a homeowners policy is going to be required. Also know that if you do not get one on your own prior to closing day, your mortgage provider will probably offer you one. That mortgage-provider policy is almost always going to cost you more than a policy you bought on your own and brought evidence of coverage to the closing.

So be advised that it's worth a little time and effort up-front to save yourself some cash by identifying an insurance provider and having them issue a policy effective on the date of your closing.