So you’ve just bought a home and now you’ve been told you need property insurance (also known as fire or home insurance). You’re probably wondering what it is, how you get it, and why you even need it. You’re not alone with these questions - unless you’ve bought a home before, you wouldn’t have needed to know what property insurance even is. Lucky for you, you’ve come to the right place as this blog is here to help. Let me tell you everything you need to know about property/home/fire insurance.
What is property insurance?
Let's break it down. At its core, insurance is something that provides you protection against a potential future outcome. As a product that is sold, insurance is a financial instrument that you acquire by paying a predetermined amount (usually on an ongoing basis) in exchange for a compensation guarantee, should some event covered by the insurance occur. Property insurance is a financial product that you acquire and pay for on an ongoing basis, that protects you against risks to your property, such as fire. The exact events covered and dollar value of the protection provided varies widely depending on things like home value, location, desired coverage, etc.
Why do you need it?
No matter how careful you are, there is always the possibility that something could happen to your property. Oftentimes, these ‘somethings’ are absolutely essential to fix, and can be very expensive to do so. In an extreme example, a home and all its contents could be lost to something like a fire. Regardless of what event might happen, you can count on replacement and repair costs being expensive, and most people don’t just have thousands of dollars sitting around to fix something they didn’t expect. That’s where insurance comes in.
Insurance allows you to protect yourself against the potential of these unforeseeable events happening. Rather than having your home burn down and you being personally responsible for the entire cost to rebuild, you would turn to your insurance provider who would cover the cost (or at least what’s agreed upon in your insurance policy). There is, of course, a fee associated with getting this peace of mind and protection, but paying around $100 a month for home insurance could be the difference between you being able to rebuild your home or not, in the extreme event of a fire.
Do you have to have it?
Not exactly. It's not mandatory by law but most financial institutions providing mortgages require some sort of proof of property insurance. That means that if you plan to fund your home purchase with a mortgage, you have to have insurance. These institutions want to know that the asset they’re securing their loan against (your property) is protected before they hand over five, six, or even seven figure sums. Even if you are lucky enough to not require a mortgage to fund your property purchase, it would be a very risky decision to forgo insurance. Most people who buy a home (and especially those who don’t need a mortgage) can afford to pay a nominal monthly fee for insurance, but most people couldn’t afford a huge lump sum payment to fix an unforeseen issue.
How do I get it?
First, you want to get some quotes. The price you pay for the insurance, referred to as the “premium”, and the coverage you receive can vary widely. To make sure you get the best insurance for you, I would definitely recommend shopping around for different options. You can reach out directly to insurance companies to get quotes, or you can work with insurance brokers that do the search for you. If you already have another type of insurance with a company (for example, car insurance), it’s worth reaching out to them to see what deal you might be able to get by bundling your insurance products together.
Whether you already have insurance or not, it’s worth shopping around for different quotes. This is where insurance brokers can be very helpful. It’s their job to find the best fit and rate for you, not to direct you towards a specific insurance company. If you prefer a more human touch, just search for a broker in your area. If you’re looking for something automated and online, there are great digital brokerages, such as YouSet, that do the work for you.
One area of home insurance that I haven’t yet touched on is liability insurance. As the homeowner, you are liable for any injury to other people on your property and any damage to another person's property attributable to you or your lack of maintenance. For this reason, I'd highly recommend getting an insurance policy that provides both personal property coverage and liability coverage. This will protect you in the event that someone does get injured on your property, such as in a slip and fall, and they decide to pursue legal action against you. Again, this sounds like an unlikely scenario but it’s one you should protect yourself against.
Some final words
If it wasn’t already clear, I highly recommend you get property insurance. Think of the type of protection you might need for the home that you have and use that as the early criteria in your search. No matter how unlikely you might feel about the events your coverage protects you against, the peace of mind that insurance will provide is worth it. There are also so many great brokerages out there that allow you to compare policies and prices, so it’s never been easier to find what you need.
If you’re in the process of buying a home, insurance is absolutely something that should be top of mind, especially as it will be a required part of satisfying your lender so you can receive mortgage funds. Your real estate lawyer will facilitate the delivery of your insurance information to your mortgage provider. If you’re still looking for a real estate lawyer, please consider Doormat. We provide property closing services that are completely virtual, dead simple, and very affordable. You get access to everything you need via our online dashboard and our knowledgeable support team is always there to support you when you need it.