When insurance companies find out that you are buying a house, your mailbox will start instantly receiving all kinds of offers from insurance companies. There are different types of insurance that can help cover homebuyers for just about any situation. They all come at a cost, and some are worth it when others are not.
Here’s what homebuyers need to know:
Homeowner’s Insurance – Need It
If you are obtaining a mortgage, homebuyers will be required to obtain homeowner’s insurance. This insurance protects you if something happens to your home due to an event such as a fire or a storm. If you do not have a mortgage and own your house out right, you will not be required to have this insurance, but you will still want it. Otherwise, if your house burns to the ground, you will be repaying to build it out of your own pocket.
Title Insurance – Need It
This is another insurance that is required if you are obtaining a mortgage. It protects both the buyer and the seller’s interest in the home. You don’t want to purchase a house to later find out the there are problems with the title. If you don’t obtain title insurance and there are liens on the title, you could end up legally responsible for paying them. If you decide that you do not want to obtain title insurance then you should hire a lawyer to look at the property history to see if there are any problems.
Flood Insurance – It depends
The need for flood insurance depends on where you live. If you live within a FEMA designated flood zone, you will be required to purchase flood insurance if you have a mortgage. If you aren’t in a flood zone or you have paid cash for your house, the need for flood insurance is up to you.
Back in 2012 when Hurricane Sandy hit on the Northeast coast, there were thousands of homes that were hit with water damage that had not been in the flood zone. Just because you aren’t required to have it doesn’t mean that you aren’t going to want it. If you aren’t in a flood zone, the insurance is relatively affordable and can provide you with peace of mind.
Private Mortgage Insurance – It depends
If you are able to make a 20% down payment when you purchase your house, you can skip paying for private mortgage insurance (PMI). This additional insurance is required by mortgage companies if you have less than 80% equity in your home. It helps assure the lender that they have some form of repayment should you default on your loan. If you are required to have PMI when you obtain your mortgage, keep track of your balance. When you reach 80%, contact your lender to have this insurance removed.
Mortgage Protection Life Insurance – Skip it
This insurance comes into play if you pass away prior to paying off your mortgage. This is a benefit for your family so the mortgage will be paid off upon your death. That sounds nice; however, for the cost of this insurance, you are better off purchasing life insurance that your family can use to do the same thing.
Umbrella Insurance – It depends
Umbrella insurance is used to cover anything that your insurance does not cover. The rule of thumb is that your insurance should be equal to the net worth of the person insured. This extra insurance is something you will want to consider based on your financial situation.
Insurance is important. You don’t want to be underinsured if you run into a problem. But no one wants to pay extra money for something they don’t really need. Carefully consider your situation before choosing which insurance you need.