You can legally purchase a home without buying insurance. However, if you’re going to apply for a mortgage, your lender will likely require you to buy an insurance policy as a way to safeguard its investment.
Buying home insurance for the first time can be overwhelming because you can choose from a wide variety of options. So, knowing some basic information on the coverage and other facts can help removing much of your confusion.
Check these common insurance facts before shopping for coverage:
Coverage in a Standard Home Insurance Policy
Standard home insurance policies cover some natural and man-made damages that are known as covered perils. You can expect compensation if your home is damaged by fire, lightning, windstorms, hail, explosions, vandalism, theft, and riot. Some water damages are also considered as covered perils.
However, damages caused by some natural disasters including earthquake and floods require separate insurance policies.
Let’s take a look at the typical coverage provided by a standard home insurance policy:
- If a covered peril destroys or damages your home, your insurer will pay the cost of repair or rebuilding. However, the structure coverage for such damage will be different from the price you paid for your home.
- If you need to live in a separate place during the rebuilding of your home destroyed by a covered peril, coverage for additional living expenses will pay for your food and hotel bills.
- You’ll get contents coverage for your destroyed or damaged belonging. The typical amount of such coverage is fifty to seventy percent of the structural coverage. Talk to your insurer to get more coverage for high-value items.
- The liability coverage will have your back if someone is injured on your property. It will cover the legal, medical, and other related fees.
Insurance Policy Cost Determining Factors
Some factors are there that determine the cost of your insurance policy. The insurance providers pay particular attention to the following factors:
Credit Score – A good credit score is likely to help you get
insurance with extended coverage.
History of Claims – If you’re not a first-time home buyer or owner, the providers will consider your previous claims before approving the insurance. In addition, the claims history of the area where your home is located will also influence the cost.
Location and Age of Home – You need to pay more or may need to buy additional policies if your home is located in a disaster-prone area. The same is applicable if the house is old, as it may require frequent repairs and renovations.
Additionally, the cost may depend on the type of coverage you choose and some other factors such as owning pets, proximity of your home to a hydrant or fire department, etc.
You need patience for buying your first insurance. Shop around and compare the rates and coverage provided by different providers to figure out the best option for you.