Most people know and understand that they have to have home owners insurance when they close on a house before the sale is final. It is also generally understood that you have to maintain home owners insurance as long as you are paying on the home loan. However, do you know what this insurance covers, or more importantly, what it does not cover? Do you know how much it will cost per year, or per month? How much coverage do you really need, versus how much coverage is required by the mortgage company? These are all important facts that you need to know before jumping into buying a home owners insurance policy.
First, you need to know how much money it is going to cost you to get started in your insurance policy. This is important because you will need to have this amount of money before you can close on the house you are buying. The amount that your insurance will cost you will vary depending on the area, the condition or value of the house, and the coverage that you choose. On average, the most basic home owners insurance costs anywhere from six hundred to fifteen hundred dollars per year, depending on how new the house is and its value, as well as the coverage you need or want. It is a good idea to pay the first year up front when buying a home.
Next, you need to know what is covered by the insurance. Most basic home owners insurance policies cover damage or loss from theft, fire, frozen pipes, ice and snow. Most policies do not cover earthquake, flood, or acts of terrorism. Other things may be excluded from your policy, in which case you will need to look carefully through the exclusions section of the policy to determine what is and is not covered. In some cases, such as with earthquakes and flood, you can purchase additional coverage that will cover you in these events. It will add to the cost of your policy, however. Most policies also come with liability coverage to cover you in case someone is hurt on your property.
The next thing to consider is how much coverage you really need. Most people go with the minimum amount of coverage required by the loan company, which is generally the amount of the purchase price of the home. Liability coverage typically starts at $100,000. However, if your house burned to the ground, it would probably cost more than the purchase price to rebuild it. It is a better idea to get insurance that covers you up to the amount it would cost to build your house from scratch. You can get a special type of appraisal done to determine that amount.
Finally, it is important to understand about deductibles. The lower your deductible, the higher your premiums will be. So, the best way to lower the cost of your home owners insurance is to make your deductible as high as possible. If you know you could come up with $1,000 in a pinch to pay for damages before the insurance takes over, then by all means go with that high of a deductible. Make sure it is an amount you can easily come up with so that you know the repairs will be made, but keep it as high as possible to keep costs down.