Homebuyers Should Explore Insurance Matters

Home prices have been battered over the last couple of years, but recent reports suggest that prices are stabilizing in many parts of the nation. In the first quarter of 2010, median prices rose in 91 of 152 metropolitan areas, up from 67 in the fourth quarter of 2009 and 30 in the third quarter.¹

As home prices show signs of a recovery, it’s possible that more buyers will gain the confidence to enter the housing market. An important consideration can be finding a home that meets a buyer’s needs while keeping mortgage and tax payments in an affordable range.

Because it will be necessary to insure your home for as long as you own it, you should also address the price and availability of homeowners insurance when considering the financial ramifications of your home purchase.

Investigating insurance issues early in the buying process may help you avoid costly surprises associated with the condition or location of a particular property. In the course of your home search, you might want to address the following issues.

History of Insurance Claims

A Comprehensive Loss Underwriting Exchange report or an A-PLUS loss history report can provide details of prior claims for fires, flooding, and other events that may have caused damage to the property. These reports could be a helpful source of previously undisclosed information regarding past or potential problems with the home, some of which could make it more difficult or expensive to acquire insurance.

Condition of Home

Many insurance companies want to inspect a home before they will offer to insure it. Homes with older electrical and plumbing systems could cost more to insure. Properties with damaged roofs, overgrown trees, leaning fences, or other visible issues may also trigger higher premiums. Some problems may have to be addressed in order to procure insurance.

You might pay less to insure a home with a fire hydrant nearby, or more for one that is not close to water or a fire station. In fact, a home in a remote area that is subject to risk from wildfires and is far from firefighting services could be deemed uninsurable.

Special Policy for Floods or Earthquakes

Most homeowners insurance policies protect against a range of perils, including fire, lightning, wind, hail, vandalism, and theft. However, flooding and earthquakes are typically not covered by standard policies. In areas that are documented as flood zones, your lender may require the purchase of a separate flood policy. If your home is located in an area subject to flood or earthquake risk, it’s a good idea to secure additional coverage (up to the policy limits) that could protect you from a total loss in the event that disaster strikes.

Control the Cost of Premiums

Increasing your deductible from $500 to $1,000 could reduce your premium significantly, but this may be a good idea only if you can afford to pay the higher deductible in the event of a claim. Also, the installation of safety features such as deadbolt locks, smoke detectors, and monitored fire and burglar alarms may also result in lower insurance costs.

Think Ahead

Before you make an offer on a particular property, it would be wise to consult your insurance agent ahead of time for a quote and to discuss any unusual factors that could arise regarding insurance. Waiting until the last minute could cause frustrating or even expensive delays at the close of escrow, mainly because lenders typically require proof that a policy is in place before they will provide funds for the purchase.

1) The Wall Street Journal, May 11, 2010

The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. © 2010 Emerald.