real estate buyersBuying a home entails additional expenses apart from the actual purchase price. One of the requirements in getting your home loan application approved by the lender is to take out a homeowner’s insurance policy, or what some lenders call “hazard insurance”.

Benefits of homeowner’s insurance

Lenders require this insurance as a form of protection for them. This is helpful to the lenders when untoward circumstances affect their investment on the home, say a natural calamity or a fire that destroys the property. If this kind of situation happens, the lender will be able to receive payment from the insurance to cover the loss of the home.

On the part of the buyer, having an insurance policy protects you from the same catastrophe that your property may encounter in the future. If you have bought a homeowner’s insurance policy, you may recoup the amount equivalent to the damage on the property, or even the full purchase price. It can also protect you from lawsuits involving injuries that happen within your property, say a third-party individual who gets injured while working on some form of work inside your home. The insurance company will pay for treatment of injuries in this matter.

Presenting the policy to the lender

Because the lender requires you to take out a homeowner’s insurance policy, you should be able to present proof that you have paid the insurance premiums for 12 months. Most lenders won’t approve your loan if you cannot give them proof.

You may give the lender a copy of the insurance policy’s declarations page, which contains the effective date of the insurance, the period of coverage, and the total cost for 12 months of premiums. Other buyers prefer to give the lender a copy of the entire policy document, but the declarations page is already enough. You must also enclose a copy of the receipt that shows your payment for 12 months.

Finding the right insurance policy

Deciding on what kind of insurance policy and which insurance company to get involves a lot of factors. Here are some tips on how to get the best possible homeowner’s insurance policy:

  • If you have no idea which insurance company offers the best services, ask around. Your family or friends may have taken out an insurance policy recently, so ask them about their experiences on their insurance companies. Take note of negative feedback such as insurance firms that cancel the policy for unacceptable reasons or increase their rates before a claim.
  • Ask the state insurance office for possible referrals. They will probably have sufficient information about complaints against insurance companies.
  • Do a quick online search on reputable insurance companies. You may also find online information on how to save big on an insurance policy. Some insurance companies have been reported to reduce their rates when they learn that a smoke detector or burglar alarm system in installed in the property.

Types of insurance coverage

  • Guaranteed replacement cost: Compared to an actual cash value replacement coverage that considers lower rate for coverage value, this type of coverage offers a higher payout.
  • Personal property protection: If you want the items inside the house insured as well, ask the insurance company to include this type of coverage in your policy. Some policies include this provision by default, while others offer this as a rider or add-on. The latter will require you pay a top-up fee for the additional coverage.
  • Liability (or excess liability): As an additional protection for you, ask for liability coverage. A good coverage for liability should be equivalent to twice the amount of your assets.
  • Location-based insurance: Some states are prone to natural calamities such as flood, wildfire, or earthquake. It might be best to take out a separate insurance policy that covers these problems. Some lenders require buyers to take out this kind of policy as protection for them as well.
  • High-valued personal items: If you own high-value items – say an ancient set of jars or a framed Picasso painting, you may buy a separate insurance for them. Some policies may include this as a rider.

Whatever insurance policy and coverage you decide to purchase, make sure that these are finalized days or months before the actual closing date.

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