One of the many things to pay attention to when buying a new home is homeowner’s insurance. Your lender requires proof of insurance before your loan closes. The escrow period can seem overwhelming, especially for your first time buying a new home. It may be tempting to rush into an insurance plan to meet the requests of the lender. But there are some important things to consider when choosing insurance. Basic homeowner’s policies provide the following coverage points: damage to the home, damage or theft of the contents of the home, and personal liability coverage. There are limitations to these coverages that are important to understand. When buying a new home, keep the following points in mind when choosing your homeowner’s policy.
Damage to the home
Every insurance policy is different, but the basics are similar across the board. Your policy covers damage to the home caused by specific causes of loss (called “perils”) listed in the policy. The most commonly covered perils are: fire and smoke, lightning strikes, windstorms and hail, explosion, vandalism, damage from a car, aircraft or vehicle, theft, falling objects, weight of ice, snow, or sleet, and specific types of water damage. It is important to note that it must be clear that the damage occurred due to one of the named perils and cannot be attributed to something else, like normal wear and tear. Also, damage caused by flood and earthquake are not covered in a basic policy. Insurance companies offer Earthquake insurance as an optional coverage, but flood insurance policies are completely separate policies.
Contents of the home
Personal property is covered as a percentage of the replacement value of the home, usually around 50%. So if your home is covered up to $500,000 then you would have up to $250,000 in coverage for personal property. Here is where it gets tricky-certain items will only be covered up to certain amounts. For example, it is common for policies to cover up to $2,500 for a piece of jewelry. So if you have a ring worth $10,000 you will need to have it listed separately in the policy. Most commonly, the items in this category are jewelry, cash, furs, antiques and collectibles. As a general rule of thumb, if you have anything that is inordinately expensive you should mention it to your insurance company and see if you need to get a personal articles floater.
Personal Liability
Personal property is covered as a percentage of the replacement value of the home, usually around 50%. So if your home is covered up to $500,000 then you would have up to $250,000 in coverage for personal property. Here is where it gets tricky-certain items will only be covered up to certain amounts. For example, it is common for policies to cover up to $2,500 for a piece of jewelry. So if you have a ring worth $10,000 you will need to have it listed separately in the policy. Most commonly, the items in this category are jewelry, cash, furs, antiques and collectibles. As a general rule of thumb, if you have anything that is inordinately expensive you should mention it to your insurance company and see if you need to get a “personal articles floater”.
Lisamarie Wand is experienced and knowledgeable in the areas of residential real estate, commercial real estate, and property management. Contact her today with any questions!
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