Home “Security” System: Deciding On The Right Insurance To Protect Your Investment

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By Mia Bolaris-Forget

Outside of your education, purchasing a home is probably the largest investment you’ve ever embarked on. You are bound to want to protect your investment and one of the easiest ways to do it is by making yet another investment in home insurance, In fact, experts note that most home buyers purchase the insurance before they go to closing on their new home.

Prior to closing lenders generally require buyers to have at least title insurance in order to guarantee the lender’s interest in the property. The buyer usually pays for the lender’s title policy; however, the lender’s policy does not protect the buyer’s interest in the investment.

Financial advisors suggest that buyers purchase their own title insurance. Who pays for this additional protection plain is generally negotiable between both buyer and seller, and is often subject to local custom. Title insurance is a one-time-only “investment” and is not transferable.

Cost of title insurance is based primarily on the purchase price of the property. The more expensive the home, the more expensive the insurance premium. However, if the recent sellers had refinances, you may be entitled to a discounted premium rate, known as a short rate.

Besides title insurance homebuyers are required to secure other essential coverage for their home. This includes hazard insurance to protect against liability against such things as fire, etc. Most homebuyers invest in a comprehensive policy that covers things such as vandalism, theft, water damage (but not flooding), personal possessions, loss of use of the dwelling, etc. And experts advise that those who live near the water or in a flood zone should consider flood insurance.

Homeowner’s insurance, differs from title insurance in that it’s an ongoing basis, for as long as you own the home. Usually, the lender will ask that you pay one yea’s premium up front before closing. After closing you can choose a payment plan (schedule) that’s comfortable for you, monthly, quarterly, annually, etc.

Homeowner’s insurance rates differ from company to company, lender to lender, and location to location. There are also a variety of different policies and plans, so when comparison-shopping, make sure you are comparing like and similar plans and not vastly diverse ones.

The most expensive yet comprehensive homeowner’s insurance policy is a guaranteed replacement cost policy. With this coverage plan you are reimbursed to rebuild your home, even if the cost exceeds your policy limit, though in recent years, this type of plan is more difficult to find. Some companies will only pay a portion of the claim, up to the policy limit. Others pay up to 120 or 125 percent of the policy cap.

Advice For First Time Buyers and Policy Holders:
Financial experts note that insurance agents quote home insurance policy fees based on the estimated cost to rebuild as a result of the total square footage. They advise making sure that the estimate is accurate reviewing the dimensions with a local building contractor. Financial advisors also alert first-timers about insurance agents who may be inclined to estimate low in order to save you money on your policy. Remember, the lower the cost to rebuild, the lower the cost of your premium.

They caution, while this may save you money (initially), it may wind up being more costly in the long run. Should you actually have to rebuild you may need to spend more than you have or is covered by your policy.