Homeowner's Insurance

  

Homeowner's insurance is an important part of the home buying process: most mortgage lenders will require you to have insurance. It protects your home and your possessions in cases of natural disasters, accidents, or other damage.  However, it usually does not cover flood or earthquake insurance, which is typically a separate policy.  

Here are some tips to get you started:

  • Contact a few companies to compare coverage. You aren’t required to buy your insurance from any particular company, so it makes sense to shop around. Compare the coverage, price and customer reviews before making a decision, and shop for value rather than rock-bottom price. Like many things in life, you’ll get what you pay for. GoldenKey has partnered with selected insurers to help you get the right policy at the best price.

  • Escrow your insurance payments with your mortgage payments. In most cases, homeowners insurance (and property taxes) are paid once per year. Most homeowners choose to add the monthly portion of those payments to their monthly mortgage. This helps you budget for the cost of insurance and makes it easy to guarantee your coverage. Lenders also prefer this option because it guarantees that your insurance premiums are being paid. 

    Example: If your annual homeowners insurance premium (or payment due) is $2,400, you may add $200 per month to your mortgage payment. This extra payment each month adds up to $2,400 over the course of the year, and it is held in escrow (a neutral account). The extra payments are then automatically paid out in one lump sum to the insurer when the annual payment is due.

  • Make sure you get adequate coverageThe most important part of homeowners insurance is the level of coverage. Purchase enough, but avoid paying for more than you need.


Most Common Coverage Levels:

HO-2: A broad policy that protects against 16 perils that are named in the policy.

HO-3: Broader than HO-2, this policy protects against all perils except those specifically excluded by the policy.

HO-5: A premium policy that typically protects newer, well-maintained homes; it covers all perils except those specifically excluded by the policy.

HO-6: Insurance for co-ops/condominiums, which includes personal property coverage, liability coverage and coverage for improvements to the owner’s unit. Insurance for the actual structure usually comes through the condo association.

HO-7: Similar to the HO-3 policy described above, but for mobile homes.

HO-8: A policy specifically for older homes, with similar coverage to the HO-2 policy described above. However, it only covers the actual cash value of the home.

 

Glossary

Deductible: Refers to the amount you must pay out of pocket before your insurance kicks in; the higher the deductible, the lower the annual premium.

Liability coverage: Coverage that will pay medical or legal bills if someone is hurt on your property, usually due to negligence.

Personal property: Sometimes called the contents of your home, this is tangible property such as furniture, electronics and clothing.

Premium: The price you pay for insurance, usually annually or monthly.

Replacement cost: The kind of insurance that pays the full cost of replacing your dwelling or personal property, up to a maximum dollar amount. Most standard policies offer replacement cost, but you want to be sure the maximum amount is high enough.

Actual cash value: This type of policy gives you the current cash value (with depreciation) for personal property or your dwelling. It’s possible to have actual cash value dwelling coverage (as with an HO-8 policy), but to get replacement cost coverage for your contents.

Sub-Limits: Homeowners insurance policies will include limits, but they’ll typically also have sub-limits. For instance, the sub-limit on personal property for a $500,000 policy would typically be $250,000, or 50 percent of dwelling coverage.

Sub-Limits: Homeowners insurance policies will include limits, but they’ll typically also have sub-limits. For instance, the sub-limit on personal property for a $500,000 policy would typically be $250,000, or 50 percent of dwelling coverage.

Riders: These are policies you can include on your overall insurance policy to cover specific items. For instance, expensive antiques, jewelry and artworks are often covered under their own rider because they’re too valuable to be covered as regular personal property. Some HO-8 policyholders also may get additional riders for things like heating, ventilation and air-conditioning systems, which are part of the home and expensive to replace.

 

Be sure you understand how all of these terms work together in your homeowners insurance policy. Ask questions to ensure you have the right amount of coverage at the right price!