When you buy a home, you are most likely required to secure a homeowners insurance. It is an important condition to closing on the mortgage used to buy your home. And because you are going to pay for this insurance going forward, you might as well know how to lower your costs of getting and keeping one.
Why lenders look for homeowners insurance
It’s important to the lenders that the home securing the repayment of the loan is well-maintained and protected from losses or liability. Being an investment, a homeowner like you is required to get an insurance to cover:
- The home’s structure and related structures attached to it.
- Personal property, e.g. furniture, electronic equipment and other tangible property inside the home.
- Personal liability in case someone gets injured in your home.
- Medical expenses incurred by that someone hurt in your home.
- Living expenses or loss of use in case you have to move out while your home is in repair.
A standard homeowners insurance gives protection against theft, fire, wind and other perils specifically set out in the policy.
You can’t file a claim for loss arising from perils not covered by your policy. If you live in a flood- or earthquake-prone area, you might be required to obtain a separate policy for each.
Other important belongings like antiques, artworks or heirlooms not covered by your standard homeowners insurance can be protected by riders to the insurance. Don’t insure the land beneath your home as it will inflate your insurance costs.
In deciding the coverage you’ll need for your new home, it might help to review the home’s previous Comprehensive Loss Underwriting Exchange. This gives you a CLUE on the type of insurance claims that have been made against the property.
What you look for in a homeowners insurance and lower its costs
Essentially, your policy will be priced based on the coverage, riders included, that you’ll be getting. Given that, there’s always a wiggle room to lower your costs. It’s time to learn the first rule: Always shop and shop for value.
Asking insurance quotes from at least three companies is a good starting point; you can compare prices based on the coverage you want.
And it can be tempting to fall for the policy with the incredibly lowest rates. But always examine the caveat, the conditions that are attached to it. This policy might turn out to be more expensive than the others.
Another way to get lower premiums is to raise your insurance deductible. It refers to the amount or percentage that comes out of your pocket before the insurer processes and pays your claim.
You don’t really pay this deductible to the insurer. Let’s say your insurance has a deductible of $500 and you file a claim for $1,000. If covered by the policy, the insurer will give you $500. Insurers vary in computing deductibles, which could be separate for each kind of peril/damage.
It also helps if you have maintained a great credit standing before applying for a homeowners insurance. More insurers are looking into a customer’s credit record and a stellar payment history may entitle you to discounted premiums.
Speaking of discounts, homes with features that make them fortified or stronger against storms and winds can be considered by insurers when calculating the cost of the insurance.
Your homeowners insurance premium makes up a fourth of your monthly mortgage payment and an expense that is both upfront and continuing. It deserves it be among your main considerations when buying a home and getting a mortgage.
Justin McHood is a managing partner at Suited Connector and has been recognized by national media outlets as a financial expert for more than a decade.
