Insurance Coverage: When Does It Kick In?

When does house insurance start? Well, it depends. If you're getting a mortgage, your lender will require you to have home insurance before they'll agree to finance your purchase. In this case, you'll need to start shopping for insurance as soon as you've signed a contract to buy a home. Typically, you'll have a month or more between signing a contract and closing on your new home, and most lenders require proof of insurance a few days to two weeks before closing. If you're purchasing without a mortgage, home insurance isn't required by law, but it's still a good idea to protect your investment.

Lenders require insurance before closing a mortgage

When buying a new house, it is important to get homeowners insurance before closing the deal. Lenders require borrowers to purchase a home insurance policy before they will approve a mortgage. This is to protect their investment in the property. While homeowners insurance is not required by law, most mortgage lenders mandate it in exchange for extending a home loan to the buyer.

Lenders will usually require proof of homeowners insurance before they will close on a home. This proof usually needs to be provided a few days to two weeks before the closing date, so it is recommended that buyers start shopping for insurance a month in advance. This gives buyers time to compare different insurers and properly evaluate their coverage options. It also allows the insurer time to "underwrite" the home, which is particularly important if the home has unusual or costly details.

The amount of homeowners insurance required by lenders is typically based on the replacement cost of the home. Lenders want to ensure that the home is insured for 100% of its replacement cost so that it can be completely rebuilt in the event that it is destroyed. This amount is different from the home's market value or purchase price and is usually calculated by the insurance company.

In addition to standard homeowners insurance, lenders may also require additional coverage if the home is considered high-risk. For example, if the home is located in a flood zone, the lender may require flood insurance. Similarly, if the home is in an earthquake-prone area, the lender may require earthquake insurance.

By securing homeowners insurance before closing on a home, buyers can safeguard their purchase and protect their investment. It is important to research different insurance policy options as they may offer different levels of coverage.

You should shop around for insurance

When it comes to house insurance, it's important to shop around and explore your options. Here are some reasons why:

Finding the Right Coverage:

Start by determining the type of coverage you need. The most common type is a replacement cost policy, which will pay to repair or rebuild your home based on current construction costs. There are also actual cash value policies that consider depreciation when paying out for repairs or rebuilding. You can also look into extended replacement cost value coverage, which will cover the cost of rebuilding your home even if it exceeds your policy limit. This is especially relevant if you live in an area prone to natural disasters, as construction material and labour costs tend to increase in such situations.

Picking a Coverage Amount:

Ensure that you have sufficient coverage to replace your house if it's destroyed. Consult with an agent or use online tools to determine the cost to rebuild your home and assess the value of your personal property. This will help you choose an appropriate coverage amount.

Getting Price Quotes:

Obtain price quotes from multiple insurers. Use online tools or contact companies directly to get sample prices and compare policies. This will allow you to find the best value for your desired coverage.

Assessing the Company's Record:

Look into the customer service and complaint record of the insurance companies you're considering. Check their financial strength and stability using sites like AM Best. Additionally, refer to sources like J.D. Power and Consumer Reports to gauge the quality of their customer service and coverage.

Understanding Deductibles:

When comparing policies, pay attention to the deductibles. The deductible is the amount you must pay before the insurance company covers the rest. Higher deductibles typically result in lower premiums. If a policy has a deductible that's a percentage, make sure you understand how that translates into a specific amount.

Exploring Discounts:

Many insurance companies offer discounts if you take steps to reduce the chances of a loss. Common discounts include having security systems, fire alarms, or sprinkler systems installed. You may also get discounts for having multiple policies with the same company or maintaining a claim-free record for consecutive years.

Checking Licenses:

Before finalising your decision, verify that the insurance company's license is up to date. This ensures that the company is authorised to provide insurance services.

Avoiding Gaps in Coverage:

Be cautious when switching policies. Do not cancel your current policy until you have secured a new one or received written confirmation of coverage. If a company turns you down, continue shopping around.

Considering Additional Coverages:

Depending on your location and specific needs, you may require additional coverages. For instance, if you live in a flood zone, your lender will likely require flood insurance. Even if it's not mandatory, consider purchasing flood insurance as a significant number of flood claims occur outside of designated flood zones. Similarly, if you have valuable items like jewellery, fine arts, or electronics, you may want to opt for extra coverage to ensure they're adequately protected.

Understanding Liability Insurance:

If you require more liability coverage than what a standard home insurance policy provides, you can purchase a separate umbrella policy. Make sure to understand the specifics of the liability coverage offered, as policies can vary significantly.

You may need to pay upfront for the first year

When it comes to purchasing home insurance, it is important to remember that, in most cases, lenders will require you to buy a home insurance policy before the loan closes. This means that you may need to pay upfront for the first year of coverage. Here are some key things to keep in mind regarding this upfront payment:

Firstly, securing coverage before moving into your new home is crucial for safeguarding your investment and protecting yourself and the lender. By doing so, you can ensure that you are covered in case of disasters such as a burst pipe or fire. This will save you from having to pay out of pocket for expensive repairs.

Secondly, the amount of coverage required by your lender may vary, so it is essential to understand their specific requirements. Some lenders may also require you to purchase extra coverage in addition to a basic homeowners policy, especially if your home is in an area prone to natural disasters like floods or earthquakes.

Thirdly, when purchasing home insurance for the first time, pay close attention to the deductible amount. The deductible is the portion of the claim that you are responsible for paying. Make sure that this amount is within your budget and consider choosing a higher deductible to lower your premium.

Additionally, it is worth noting that your home insurance policy will likely include an escrow account. This account is set up by your lender to hold funds for certain property expenses, including insurance costs and property taxes. Each month, a portion of your mortgage payment will go into this escrow account, and the lender will use these funds to pay your insurance and tax bills when they are due.

Finally, remember that you have the power to choose your home insurance company. While your lender may provide referrals, it is your responsibility to ensure that the coverages in your policy adequately protect your residence, detached structures, and personal belongings. Take the time to compare quotes, coverages, and consumer reviews before making your final decision.

You can save money by bundling insurance

When buying a new house, there are many things to consider, and one of the most important is insurance. You'll need to have home insurance in place before your closing date, and you may also want to think about life insurance and insurance for your car, motorcycle, or RV.

A great way to save money on insurance is to bundle your policies. Many insurance companies offer discounts if you buy more than one type of insurance from them. This is because they want to attract customers who will stay with them for years and not just a few months. By bundling your insurance policies, you can benefit from lower rates and the convenience of managing all your policies in one place.

For example, let's say you have home and auto insurance bundled with one company. You might receive a 10% discount on your auto policy and a 15% discount on your homeowners insurance. If you were to bundle your auto insurance with a renters policy instead, you could see a discount of up to 5%. The more policies you bundle, the more you can save.

In addition to the cost savings, bundling your insurance policies can also save you time and effort. You only need to make payments to a single company, and you can easily access and manage all your policy documents from one place. This makes it simpler to keep track of payments, ask questions about your premium, and update your coverages.

However, it's important to remember that bundling is not always the best option. Insurance pricing is highly individualised, and the cost will depend on factors such as where you live, your credit history, and the value of the items you're insuring. In some cases, you may find that you can get a cheaper rate by choosing separate companies for your home and auto insurance. It's a good idea to shop around and compare rates for both bundled and unbundled policies to ensure you're getting the best deal.

Insurance covers repairs and legal fees

Home insurance covers repairs and legal fees, but the extent of this coverage depends on the type of damage, the severity of the claim, and the policies of your insurance company.

Repairs

Home insurance typically covers repairs to your home's structure and personal belongings in the event of damage caused by fire, theft, vandalism, or weather events like lightning, wind, or hail. It also covers detached outbuildings, such as garages, sheds, and fences, as well as outdoor items like grills, swing sets, and recreational equipment. However, certain high-risk items may require additional liability coverage.

In the case of minor cosmetic damage, it may be more cost-effective to make repairs yourself rather than filing a claim, as any claim may lead to an increase in your premium. Additionally, if the damage is due to a lack of maintenance, it may not be covered by your insurance policy.

Before making repairs, it is important to review your policy and understand the process for filing a claim. Your insurance company will usually inspect the damage and determine the payout amount. They may allow you to do the repairs yourself, but this depends on the severity and complexity of the damage, as well as local regulations and safety considerations.

Legal Fees

Home insurance provides personal liability protection, which covers medical and legal expenses if someone is injured on your property. This includes guests, neighbours, or mail carriers. However, certain dog breeds and exotic pets may be excluded from coverage.

Identity theft coverage is also included in some policies or offered as optional coverage. This can help cover legal and other fees associated with restoring your credit if your identity is stolen.

Frequently asked questions