Quick Guide to Home Insurance

You searched and found your dream home, negotiated the price, and got all of your financing in order. But before you turn the key on your new home, you need to protect your investment—and everything inside of it. That means buying a home insurance policy.

Even if you have never shopped for home insurance—or if you just haven’t purchased a new policy in a while—there are a few things to keep top of mind as you navigate the task.

How much is this going to cost?

We get it—you already plunked down a gut-wrenching amount of money for the house and the fees and the closing costs. Now you have to shell out more cash for insurance? No, it isn’t fun. And it isn’t sexy. But you gotta do it. And it all starts with the premiums. In California, this has become a large expense because of the wildfires over the last few years and insurance companies raising premiums and even cancelling policies.

Pro Tip: Take the time to talk to an insurance broker and see what the policy premiums for owning a home in the neighborhood/area you are looking to move to.

Your annual premium is the amount an insurance company will charge you every year to cover your home and its contents in the event of fire, theft, etc. Every insurance company has its own way of determining annual premiums.

A few factors set your rate: the value of your home and its contents, as well as your deductible, which is the out-of-pocket amount you’ll have to pay in the event of a claim. But home insurance premiums also vary by region and company. Two home insurance policies with identical coverage and limits in two different parts of the country, or even a town, could have very different annual premiums, Bank says.

Filing a home insurance claim within the past five years also increases the amount you’ll pay.

“To an insurer, that increases the likelihood you’ll file a claim,” Bank says.

And, of course, Mother Nature plays a role. If you live in an area with a history of wildfires, earthquakes and/or live in a flood zone, you can expect to pay more.

How you’ll pay

The initial premium is typically due when you purchase the policy and when you buy payed out of escrow or your insurance agent will provide an insurance binder which provides the coverage of the home. That will cover your home and property for the first year.

Subsequent premiums can also be paid directly by you (your insurer will bill you), or you can opt to escrow the premium and have a portion of it built into your mortgage payment. Even though that bumps up your monthly costs, you might find this the best way to ensure you have enough money to cover the premium when it’s due.

Timing is everything

It’s never too early to start shopping for home insurance. Gathering quotes as soon as the contract is signed will help you understand how the annual premium will factor into your budget. You need to know all of your monthly costs.

You’ll want to choose a policy and have it paid in full at least two weeks before closing—otherwise you might face delays for closing the home and/or be insured.

Know whom you’re working with

It’s a fine idea and makes sense to shop around. An independent insurance agency or broker deals with several companies, versus captive agents who represent just one insurer. Obtain a mix of three to four quotes from both types of agents to compare premiums (even from the same companies) and coverages available.

Take inventory

As you’re packing and/or unpacking, take videos or photos using your smartphone of your belongings and store them in the cloud (iCloud, Google Drive, Dropbox, etc) as a digital home inventory. That will help speed up a claim and ensure the maximum possible reimbursement in the event of a fire, theft, or other covered disaster. Knowing what you own and creating an inventory will also help you decide which insurance policy will give you adequate coverage for your belongings, including furniture, electronics, and collectibles.

Ask about add-ons especially for jewelry and collectibles

If you own jewelry, artwork, wine, coin or stamp collections, or other keepsakes, ask about coverage and coverage limits. You probably are under insured for jewelry and collectibles with a standard homeowners policy.

Get your docs in a row

You’ll need a copy of the “insurance binder,” which details the coverage values, premiums, and restrictions. But you shouldn’t have to track down that information. Your agent should work directly with the mortgage lender to provide proof of coverage required at closing.

Understanding terms used for home insurance

Insurance and risk management terms, click the link.

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