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4 Things First-Time Buyers Should Know About Home Insurance

Paper cutout of a house and an umbrella to illustrate the importance of homeowner's home insurance.

There’s no doubt that buying a home can be overwhelming – which is why some buyers may underestimate the importance of homeowners insurance. First-time buyers are especially prone to giving minimal thought to the insurance buying process and making sure they have adequate coverage to protect their new investment and its contents. That’s why – before you sign on the dotted line – you may want to heed the following 4 tips to guide you safely along:

1. Contact at least three companies to compare coverage.

Because your home won’t actually be your home until the loan is paid off, your mortgage lender will in all likelihood require you to have homeowners insurance. It’s non-negotiable. You may even be required to purchase additional insurance – like flood insurance if the house is situated in a risk area.

Luckily, you aren’t forced to buy from a particular insurance company. The advantage is – you can compare coverage, price and customer reviews. But, be sure to buy the right type and amount of coverage. While value is important – avoid rock-bottom premiums. Also, try to choose an insurance company that is known for having an excellent customer service department. Since you’ll mainly
deal with your insurer during times of disaster, the last thing you want during those times is aggravation.

2. Escrow your insurance payments with your mortgage payments.

By opting for an escrow or impound account, your homeowners insurance payment and usually your property taxes will be included in your mortgage payments. Lenders often prefer this option because it lets them know your insurance premiums and taxes are being paid, and their investment is well protected.

3. Make sure you’ve got adequate coverage.

The most important part of homeowners insurance is the level of coverage. Of course, you want to avoid paying for more than you need – but always be sure you have enough. Know your property’s value and review it annually. Some insurance companies may undervalue your home, creating a situation that can be difficult to resolve in the event of a total loss.

4. Understand the details of your policy.

Sounds simple, but you’d be surprised at the number of homeowners who haven’t read their homeowners policy. After a disaster is not the time to pull out the reading glasses.

It’s not enough to just seek the right policy level. Before you make a decision, understanding the following homeowners insurance terms could be very helpful:

Deductible – This refers to the amount of money you must pay out of pocket before your insurance kicks in; the higher the deductible, the lower the annual premium. And, vice versa.

Liability Coverage – This is 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 – This is the price you pay for insurance, usually annually or monthly.

Replacement Cost – This is 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.

Sub-Limits – Homeowners insurance policies will generally include limits, but they’ll typically also have sub-limits. For example, 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.

Remember, if something happens to your home, homeowners insurance can make or break you – and you don’t want to end up on the short end. Be sure you understand terms and conditions of your policy to avoid confusion later. If you’re unclear about something, ask questions to ensure you’ve got the right coverage and amount to fully protect your home and belongings.

Now that you have a better understanding about the benefits of homeowners insurance, it’s time to get a policy. Freeway Insurance offers the best policies from a wide assortment of insurance providers to ensure you that you’re getting the best plan for your money. Call Freeway Insurance at (800) 777-5620 to get your free, customized quote or get your free homeowners insurance quote online. 

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