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Your Home & Insurance
A new home& a new beginning. For many people who buy a house, the purchase cost may be the largest single investment they will ever make. Therefore, go forward cautiously, protect yourself and your investment from the perils that may be ahead.
MORTGAGE CANCELLATION INSURANCE
Mortgage cancellation insurance is a life insurance policy to pay off the balance on your home mortgage, thus leaving your dependents with a deed, not a debt. It is usually a declining term policy, adjusted to the declining balance on your mortgage. It's one way of guaranteeing that your family won't lose their home if the breadwinner should prematurely die.
TITLE INSURANCE
The title to your new home may be recorded in the official records in your county courthouse, but that does not necessarily mean it's secure! Most home buyers may not be aware of it, but you can actually lose everything you have invested in your house without being hit by a hurricane or a tornado. Deeds for the real estate parcels sometimes are not as clear-cut as they should be. So when you buy a home your mortgage lender may require that you not only buy home owner's coverage, but title insurance as well.
The purpose of title insurance is to protect you against a financial loss if it is discovered later that your title, or documentation of ownership to the property, is somehow defective. Sometimes, these defects do turn up. They may be years old, and involve all sorts of situations, such as previous owner s failure to satisfy a judgment or a mortgage on the property.
Insurers research all aspects of a title using archives before they issue a policy. That means your chance of buying a defective title is relatively slim. It also means that any defects the insurer discovers that increase the chance of loss will normally be spelled out. Once the title insurance policy is issued, the title company assumes losses resulting from loopholes and flaws in the title it failed to find. Of course, the insurer's liability is limited to the amount specified in the policy.
The premium normally is a modest, one-time fee, usually paid at the time you purchase the house. Modest or not, the policy could be as valuable to you as the deed to your home. So, whatever you do, don't forget it or mislay it. Keep it with the deed in your safe deposit box, or have your attorney keep it with his copy of your will and any other important papers.
HOMEOWNER'S INSURANCE
Well& now that you have bought the house, and the title is clear, you will need home owner's insurance.
Basic home owner's policies provide coverage for the homeowner against specific named perils which are listed in your policy. While a basic policy covers the home owner against 11 perils, broad form policies cover those perils plus 6 others.
Home owner's policies cover not only the dwelling, but other structures on the same property such as a garage, tool shed or pool house.
Personal belongings including furniture, appliances, clothing, and other possessions, also are covered for their actual cash value (their original cost minus an amount subtracted for depreciation) at the time of loss.
REPLACEMENT OF COST COVERAGE
Another kind of policy, available in most states, provides' "replacement cost coverage" (the cost to replace the lost items without subtracting for depreciation) for personal property. Consumers should note that the coverage of certain valuables such as furs, jewelry and watches is usually limited to a fixed amount. You may wish to protect your investments in such valuables with special additions to your home owner's policy, or with a separate policy. Ask your insurance agent about obtaining a "personal articles floater" for such investments.
Another feature of the home owner's policy is that it will pay reasonable additional living expenses (over and above normal expenditures) made necessary by damage to the home caused by an insured peril. This feature also applies in the event of an evacuation ordered by a civil authority because of damage to nearby areas by a peril listed in the policy. The home owner's policy does not cover automobiles, flood or earthquake damage, which require separate coverage.
The liability portion of a home owner's policy applies at home, or elsewhere, to legal obligations resulting from injuries or damages caused by you, a member of your family, or even your pet dog. It also includes the cost of your defense if you are sued.
The minimum liability limit for each form of the home owners' policy is generally $25,000, but larger amounts can be purchased. Consumers may wish to purchase "umbrella" liability insurance to protect against catastrophic law suits. It provides up to $1 million and more, over and above the standard liability limit coverage. Umbrella coverage has become popular among people who have substantial assets and who may be subject to larger lawsuits.
HOW MUCH INSURANCE DO I NEED TO BUY?
Many homeowners tend to equate the amount of insurance they need on their dwelling with the market value of their property. But that may be more insurance than you need. You don't need a home owner's policy to cover damage to your sidewalks or to the land around your house. Your main concern is protecting your investment in your house itself, any other buildings on the property and your personal belongings. The land will probably remain intact, and retain its value, even if the house and everything inside is destroyed. Thus, you should find out how much it would cost to replace the house and its contents.
If the estimated market value of your property (house and land) is $100,000, and the projected cost of replacing the dwelling (rebuilding from scratch) is $80,000, then $80,000 is the figure to work with for insurance purposes.
REPLACEMENT VALUE REQUIREMENT
In order to collect the full replacement cost for even partial damage to your house, you must have coverage equal to at least 80 percent of the full replacement value. Therefore, if we assume the replacement value, or rebuilding cost is $80,000, coverage for $64,000 (80% of the replacement cost) meets the replacement value requirement. Your personal belongings are insured for 50% of the replacement value established, or $32,000 in this example.
MAKING AN INVENTORY
The worst possible time to make an inventory of your home is after something happens to your personal belongings& you'll never remember every article in the damaged area.
Therefore, make a list& now& of the contents of your home. Conduct a room-by room inventory, including all furniture and important personal belongings. Keep store receipts and note dates of purchases if possible. Take photographs of major items. Store a copy of your inventory and negative in a safe place away from home. They will be of no use if they burn in a fire.
HOME OWNER'S WARRANTY INSURANCE
Imagine buying your home, moving in and then-POW!-your heating system breaks down. Things like that do happen and could cost thousands of dollars in unplanned expenses. If you are the seller, you could also have a lawsuit on your hands!
In many states, the home buyer or home seller can purchase home owner warranty insurance. This is specialized coverage, which protects the buyer from unforeseen expenses caused by a failure in the home's major mechanical systems or in the major appliances.
As a seller, offering home warranty coverage can help make your home more attractive to prospective buyers. As a buyer, it could put your mind at ease especially if you are buying an older home.
Numerous coverage options exist. A home warranty policy may be a good thing for you to look into. Ask your real estate salesperson or broker for the details.
GETTING THE BEST VALUE
Your responsibility as an insurance consumer goes beyond deciding which policy to buy. To get the best value for your insurance dollar read your policy so you'll know exactly what it covers and what to do if you have a loss. Inform your insurance representatives of additions to your house and major purchases so that your insurance coverage can be kept up to date and so that you meet replacement value requirements. If you live in an area where prices are inflating rapidly, check with your agent every two years to be sure your coverage continues to be adequate. Report all claims promptly and accurately. If you have questions about your policy, your coverage, or a claim, don't hesitate to ask your insurance agent for information or for advice.
NATIONAL INSURANCE CONSUMER HELPLINE
For questions about your home owners insurance, you may contact the National Insurance Consumer Helpline (NICH) at 1-800-942-4242 or on the weg at www.iii.org. This toll-free number is available to all consumers in every one of the fifty states. You may call the toll-free NICH number for help with any questions pertaining to your home owner's life, health, and automobile insurance.
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This article provided for you by Edge Real Estate, 303-681-8888. Reprinted with permission from Homes & Land Magazine. © S.M.A.R.T. Marketing, Inc.
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